Sample Exam1 Questions

Sample Exam1 Questions - Sample Questions for Exam 1 1....

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Sample Questions for Exam 1 1. Assuming that consumption and leisure are normal goods, then hours worked will fall when the wage increases if: a)The income effect dominates the substitution effect. b)The substitution effect dominates the income effect. c)If the income and substitution effect move in the same direction (i.e., if they are of the same sign). d)If the income and substitution effect move in the opposite direction (i.e., if they are of the opposite sign). 2) Mary’s preferences for consumption ( C ) and leisure ( L ) are captured by the utility function: U ( C,L ) = ( C - 200)( L - 56) so that her marginal rate of substitution is MRS = ( C - 200) / ( L - 56). If she has 168 hours to devote to work or leisure each week and she receives $240 from a pension each week, what is Mary’s reservation wage? a) 1 . 428 b) 0 . 357 c) 2 . 80 d) 0 . 750 3) Cash transfers to the non-working poor fail to encourage work because: a)The hourly wage will continue to be less than the reservation wage.
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Sample Exam1 Questions - Sample Questions for Exam 1 1....

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