If Sara Receives a Pay Increase from $15 to $16

question 15

Multiple Choice

If Sara receives a pay increase from $15 to $16 an hour and she chooses to

• A) work more, then the income effect is equal to the substitution effect.
• B) take more vacation, then the income effect is weaker than the substitution effect.
• C) take more vacation, then the income and substitution effects are working in the same direction with regard to leisure because it is a normal good.
• D) work more, then the substitution effect for leisure demand is stronger than the income effect.

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Definitions:

Total Product

The total quantity of output that a firm produces with a given amount of fixed and variable inputs during a specified period.

Total Product

The total quantity of output that a firm produces, usually within a given time period.

Marginal Product

The additional output produced as a result of using one extra unit of a particular input.

Average Product

Average Product is the output produced, on average, by each unit of a variable factor of production, such as labor, calculated by dividing total product by the number of variable input units used in production.