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.

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Definitions:

Illegal

Activities or actions that are forbidden by law and subject to penalties.

Parents

Individuals who have a biological or legal responsibility for raising and caring for a child.

Contracts

Legally binding agreements between two or more parties, defining and governing the terms and conditions of an arrangement.

Minor Children

Individuals under the age of legal adulthood, typically under 18 years, who are considered not fully legally responsible for their actions.