The Substitution Effect of a Wage Increase Is Observed When

question 198

Multiple Choice

The substitution effect of a wage increase is observed when

• A)the higher wage income causes workers to take more leisure and work less.
• B)leisure's higher opportunity cost causes workers to take less leisure and work more.
• C)the higher wage income causes workers to take more leisure and work more.
• D)leisure's higher opportunity cost causes workers to take more leisure and work less.

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Definitions:

P > MC

A condition where the price (P) of a good is greater than the marginal cost (MC) of producing it, typically indicating the potential for profit.

MR

Marginal Revenue, the additional income received from selling one more unit of a product or service.

Socially Efficient Quantity

The level of production or consumption of a good or service that results in the optimal allocation of resources, considering both private and social costs and benefits.

Profit-Maximizing Quantity

The level of production at which a company achieves its highest profit, where marginal cost equals marginal revenue.