Comparative Statics (wage)

Question 1

When wage increases, c* _____

Answer 1

increases

Question 2

When wage increases, l*_____

Answer 2

is ambiguous

Question 3

The impact of wage increase on l* depends on which among substitution and income effect is dominant. This is determined by the _____ for u = log c + y log l

Answer 3

sign of pi - T

Question 4

Given lecture example u = log c + y log l and w increases.

If pi - T = 0, then substitution effect _____ income effect

Answer 4

=

Question 5

Given lecture example u = log c + y log l and w increases.

If pi - T > 0, then substitution effect _____ income effect

Answer 5

>

pi - T is positive
w increases, N increases, l decreases
w increases + l decreases = sub effect

Question 6

Given lecture example u = log c + y log l and w increases.

If pi - T < 0, then substitution effect _____ income effect

Answer 6

<

pi - T is negative
w increases, N decreases, l increases
w increases + l increases = income effect

Question 7

When w increases, substitution effect causes c to ______ and l to ______

Answer 7

increase; decrease

c and w move together for both sub and income effects
l oppo to c for sub
l same as c for income

Question 8

When w increases, income effect causes c to _____ and l to _____

Answer 8

increase; increase

c and w move together for both sub and income effects
l oppo to c for sub
l same as c for income

Question 9

w increases.

If substitution effect = income effect, c will _____ and l will _____

Answer 9

increase; be unchanged

c always move in same direction as w

Question 10

w increases.

If substitution effect > income effect, c will _____ and l will _____

Answer 10

increase; decrease

c always move in same direction as w
l oppo to c for sub
l same as c for income

Question 11

w increases.

If substitution effect < income effect, c will _____ and l will _____

Answer 11

increase; increase

c always move in same direction as w
l oppo to c for sub
l same as c for income

Question 12

When w decreases, substitution effect causes c to ______ and l to ______

Answer 12

decrease; increase

c always move in same direction as w
l oppo to c for sub
l same as c for income

Question 13

When w decreases, income effect causes c to ______ and l to ______

Answer 13

decrease; decrease

c always move in same direction as w
l oppo to c for sub
l same as c for income

Question 14

When wage decreases, c* _____

Answer 14

decreases

c always move in same direction as w

Question 15

When wage decreases, l* _____

Answer 15

is ambiguous

Question 16

Given lecture example u = log c + y log l and w decreases.

If pi - T = 0, then substitution effect _____ income effect

Answer 16

=

Question 17

w decreases.

If substitution effect = income effect, c* will _____ and l* will _____

Answer 17

decrease; be unchanged

c always move in same direction as w

Question 18

Given lecture example u = log c + y log l and w decreases.

If pi - T > 0, then substitution effect _____ income effect

Answer 18

>

pi - T is positive
w decreases, N decreases, l increases
w decreases + l increases = sub effect

Question 19

w decreases.

If substitution effect > income effect, c* will _____ and l* will _____

Answer 19

decrease; increase

c always move in same direction as w
l oppo to c for sub
l same as c for income

Question 20

Given lecture example u = log c + y log l and w decreases.

If pi - T < 0, then substitution effect _____ income effect

Answer 20

<

pi - T is negative
w decreases, N increases, l decreases
w decreases + l decreases = income effect

Question 21

w decreases.

If substitution effect < income effect, c* will _____ and l* will _____

Answer 21

decrease; decrease

c always move in same direction as w
l oppo to c for sub
l same as c for income