Assume That the Substitution Effect Dominates the Income Effect

question 248

Multiple Choice

Assume that the substitution effect dominates the income effect. When workers experience a positive price surprise, they

• A) correctly perceive that their real wage rate has fallen, which leads them to work fewer hours.
• B) incorrectly perceive that their real wage rate has fallen, which leads them to work fewer hours.
• C) correctly perceive that their real wage rate has risen, which leads them to work more hours.
• D) incorrectly perceive that their real wage rate has risen, which leads them to work more hours.

---

Definitions:

Cash Dividend

A payment made by a company out of its earnings to shareholders, usually in cash.

Financial Statements

Formal records of the financial activities and position of a business, individual, or other entity, typically including the balance sheet, income statement, and cash flow statement.

Earnings Per Share

A financial metric calculated by dividing the company's net income by the number of its outstanding shares, indicating profitability on a per-share basis.

Income Statement

A financial document that reports a company's financial performance over a specific period, including revenue, expenses, and net income.