Consumption

Question 1

Budget constraint

Answer 1

C = wh - wl + π -T

Question 2

Why does the graph cut vertically down towards h on the leisure axis?

Answer 2

Because there is a fixed amount of free time. When dividend income is greater than taxes

Question 3

Slope of the budget line

Answer 3

Real wage

Question 4

Slope of the IC

Answer 4

Marginal rate of substitution

Question 5

Point of optimal consumption

Answer 5

MRS = W

Question 6

Three characteristics of the IC

Answer 6

MRS
convex
downward sloping

Question 7

Two determinants on wage income

Answer 7

Taxes

Dividend income

Question 8

What shifts up the budget constraint?

Answer 8

Decrease in taxes

Increase in dividend income

Question 9

Substitution effect if increase in wage

Answer 9

Price of leisure rises so consumer substitutes in more consumption

Question 10

Income effect if increase in wage

Answer 10

Both increase as the HH is more wealthy

Question 11

An increase in wages therefore leads to

Answer 11

An increase in the supply of labour because it entices other people to join

Question 12

Increase in dividend income or decrease in taxes

Answer 12

Shifts Labour supply left

Question 13

Decrease in dividend income or increase in taxes

Answer 13

Shifts Labour supply right

Question 14

One period model: are labour and capital fixed or variable?

Answer 14

Fixed capital, variable labour

Question 15

Determinants to increase MPL

Answer 15

Increase in capital stock

Increase in productivity

Question 16

When to hire labour till?

Answer 16

When MPL = Real wage = MPN

Question 17

MPL and MPK are increasing or decreasing functions

Answer 17

Decreasing functions, they become less efficient

Question 18

Adding capital or increasing productivity does what to labour demand?

Answer 18

Shifts the curve right

Question 19

Why do you consume less leisure as wages rise

Answer 19

Because the SE > IE

Question 20

Slope of the PPF

Answer 20

MRT - marginal rate of transformation

Question 21

Three preference properties of the representative consumer

Answer 21

Monotonicity
Diversity is preferred
Consumption and leisure are normal goods

Question 22

What does a consumer demand and supply

Answer 22

Demands consumption

Supplies Labour

Question 23

What does a producer demand and supply

Answer 23

Demands labour

Supplies consumption

Question 24

Choices of firms are made by two things

Answer 24

Technology

Profit maximisation

Question 25

Increase in π-T

Answer 25

Shifts up the budget constraint

Question 26

Increase in real wage

Answer 26

Increases the slope of the budget line