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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## This note was uploaded on 05/12/2010 for the course ECON 320 taught by Professor Shin during the Winter '08 term at University of Michigan.

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

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