The Substitution Effect of a Decrease in the Wage Rate

question 188

Multiple Choice

The substitution effect of a decrease in the wage rate causes the quantity of labor supplied to _____

• A)always increase.
• B)increase only if the individual desires more leisure time.
• C)increase only if the substitution effect outweighs the income effect.
• D)always decrease.
• E)decrease only if the individual lowers the value of leisure time.

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Definitions:

Sole Proprietorship

A business owned and operated by one person, where there is no legal distinction between the owner and the business entity.

Unlimited Life

Refers to corporations having a perpetual existence, not limited by time, allowing them to continue operations indefinitely unless dissolved.

Agency Problem

A conflict of interest arising between principals (owners/shareholders) and agents (company executives/managers), where the agent may make decisions that benefit themselves at the expense of the principals.

Partnership Agreement

A legal document that outlines the rights, responsibilities, and profit and loss distribution among partners in a business partnership.