The Substitution Effect of an Increase in the Wage Rate

question 15

Multiple Choice

The substitution effect of an increase in the wage rate will _____

• A)always lead to an increase in the quantity of labor supplied.
• B)always lead to a decrease in the quantity of labor supplied.
• C)lead to an increase in the quantity of labor supplied only if leisure is a normal good.
• D)lead to an increase in the quantity of labor supplied only if leisure is not a normal good.
• E)lead to an increase in the quantity of labor supplied only if the income effect works in the same direction.

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Definitions:

Total Profits

The sum of earnings from a business operation, after all expenses have been deducted from total revenue.

Price-discriminating Monopolist

A monopolist that charges different prices to different consumers or groups of consumers for the same product, not based on cost differences.

Market

Any structure that allows buyers and sellers to exchange any type of goods, services, and information.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, with elasticity greater than one indicating a strong response.