An Increase in Wealth Will Cause the Labor Supply Curve

question 73

Multiple Choice

An increase in wealth will cause the labor supply curve to:

• A) shift leftward if leisure is a normal good.
• B) slope downward if the substitution effect dominates the income effect.
• C) slope upward if leisure is an inferior good.
• D) bend backward if the income effect outweighs the substitution effect of a change in wealth and if leisure is a normal good.

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Definitions:

Settlement Options

The various ways that an insurance policy or financial contract can be paid out to the beneficiary, including lump-sum payments and annuities.

Lump Sum Payment

A single payment made at a particular time, as opposed to multiple payments made over a period.

Present Value

The present fiscal value of a future sum of money or sequence of cash inflows, determined by a specified rate of return.

Perpetuity

A financial instrument or investment that generates a constant stream of cash flows with no end date.