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:

Preexisting Duty

An obligation that a party is already legally bound to, which cannot serve as consideration for a new contract.

Forbearance to Sue

An agreement or arrangement where a party chooses not to pursue legal action in exchange for some form of compensation or under specific conditions.

Legal Claim

A formal assertion by a party seeking judicial relief due to another party's action or failure to act in accordance with the law.

Promisor

An individual or entity who makes a promise or agreement to perform a specified act or service for a promisee.