Assuming Consumption and Leisure Are Normal Goods, Hours Worked Will

question 13

Multiple Choice

Assuming consumption and leisure are normal goods, hours worked will fall when the wage increases if

• A)the income effect dominates the substitution effect.
• B)the substitution effect dominates the income effect.
• C)the income and substitution effect move in the same direction (i.e., if they are of the same sign).
• D)the income and substitution effect move in the opposite direction (i.e., if they are of the opposite sign).
• E)the wage increase is accompanied by an increase in prices.

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Definitions:

Cost of Capital

The rate of return that a company must earn on its project investments to maintain its market value and attract funds.

Dividend Irrelevance Theory

The Dividend Irrelevance Theory posits that a company's dividend policy does not affect its market value or shareholders' wealth in perfect markets.

Basic Earning Power

A measure of a company's operating profitability relative to its assets; calculated as EBIT (Earnings Before Interest and Taxes) divided by total assets.

Business Risk

The exposure a company or investor faces due to uncertainties in the market or failures in executing its operational strategies, affecting its profitability.