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1) Household production consists of
A) any commodities which are produced at home and then sold.
B) any commodities which are produced at home and yield utility to the family.
C) any time spent at home by any family member.
D) any commodities purchased for use in the home.
Answer: B
Question Status: Old
2) If a family's budget constraint shifts because of an increase in non-labor income, then a member of the family who works outside of the home will
A) choose to decrease his or her hours of work.
B) choose to increase his or her hours of work.
C) not change his or her hours of work.
D) either increase or decrease his or her hours of work, depending on the size of the substitution effect.
Answer: A
Question Status: Old
3) If a family's budget constraint shifts because of a decrease in non-labor income, then a family member who works outside the home will
A) choose to decrease his or her hours of work.
B) choose to increase his or her hours of work.
C) not change his or her hours of work.
D) either increase or decrease his or her hours of work.
Answer: B
Question Status: Old
4) If the only working member of a household receives an increase in her wage rate, then
A) she will choose to increase her hours of work.
B) she will choose to decrease her hours of work.
C) she will not change her hours of work.
D) she could increase, decrease, or maintain her current hours of work.
Answer: D
Question Status: Old
5) If the only working member of a household receives a decrease in his wage rate, then
A) he will choose to work fewer hours.
B) he will choose to work more hours.
C) he will choose to work the same number of hours.
D) he could work more, fewer, or the same number of hours as before.
Answer: D
Question Status: Old
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6) If the decision-making process in a household is by partners bargaining with each other, then which of the following would we expect to see (compared to a household where one of the partners makes all the decisions)?
A) One of the partners is likely to drop out of the labor market and stay at home.
B) Women with fewer economic resources are likely to be better treated by their husband.
C) Holding household income constant, expenditure patterns will usually favor the partner making the most income.
D) No differences between these two types of households.
Answer: C
Question Status: Revised
7) John, a bachelor, after reading a book on homemaking, suddenly becomes twice as productive in doing household chores. This will likely make his indifference curves (between income on the vertical axis and household time on the horizontal axis) become
A) flatter.
B) steeper.
C) more bowed in.
D) less bowed in.
Answer: B
Question Status: Old
8) Which of the following events will likely make indifference curves (between income on the vertical axis and household time on the horizontal axis) flatter?
A) new inventions that make it easier to substitute market goods for household time
B) increased valued of time spent at home with children
C) an increase in income
D) smaller future wage penalties for staying at home
Answer: A
Question Status: Old
9) If two partners are substitutes in the production of household goods, then if one partner increases their leisure time (while still earning the same income), the other partner's leisure time is likely to
A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.
Answer: B
Question Status: Old
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10) Suppose that two partners enjoy each other's company. If one of the partners increases their leisure time (while still earning the same income), then the other partner's leisure time will likely
A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.
Answer: A
Question Status: Revised
11) If both the "added-worker" and the "discouraged-worker" effects coexist, then we would expect the size of the labor force to ________ during a recession.
A) increase
B) decrease
C) remain unchanged
D) increase, decrease, or remain the same
Answer: D
Question Status: Old
12) The "added worker" effect would tend to make the size of the labor force ________ during a recession.
A) increase
B) decrease
C) remain unchanged
D) either increase or decrease
Answer: A
Question Status: Old
13) The "discouraged worker" effect occurs during recessions because
A) the labor force tends to grow during recessions.
B) the expected payoff from looking for work falls relative to the expected payoff from household production.
C) one spouse is discouraged by the job prospects of the other and decides to look for a job.
D) workers are discouraged by their depleted savings and decide to look for a job.
Answer: B
Question Status: Old
14) Empirically, the "added-worker" effect is ________ in magnitude than the "discouragedworker" effect.
A) larger
B) roughly equal
C) smaller
D) roughly double
Answer: C
Question Status: Old
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15) The monetary value of a homemaker's time CANNOT be estimated by
A) measuring the services in terms of current market prices.
B) comparing the value of the services to the spouse's wage rate.
C) measuring the value of the services by looking at the homemaker's opportunity costs.
D) measuring the marginal value of the services by the homemaker's wage rate received in a part-time job.
Answer: B
Question Status: Old
16) In a life-cycle model, a worker with constant household productivity will react to an expected decrease in wages by
A) increasing his labor supply.
B) decreasing his labor supply.
C) not changing his labor supply, since the wage increase was expected.
D) either increasing or decreasing his labor supply.
Answer: B
Question Status: Old
17) In a life-cycle model, expected wage changes cause ________, while unexpected wage changes cause ________.
A) income and substitution effects; income and substitution effects
B) only substitution effects; income and substitution effects
C) income and substitution effects; only substitution effects
D) only substitution effects; only substitution effects
Answer: B
Question Status: Old
18) If Social Security payments were altered so that a fixed amount was unexpectedly subtracted from lifetime benefits at each retirement age, this would theoretically cause workers to
A) retire earlier.
B) retire later.
C) retire at the same time as before the decline in benefits.
D) retire either earlier or later.
Answer: B
Question Status: Old
19) If Social Security were changed so that those retiring at a later age receive substantially more benefits, then the substitution effect would work to ________ the retirement age and the income effect would work to ________ the retirement age.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer: B
Question Status: Revised
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20) An increase in the daily cost of child care would likely
A) increase the labor force participation rate of mothers.
B) increase the utility from not working.
C) increase the hours of work of mothers who continue to work.
D) increase the utility of a family with young children.
Answer: C
Question Status: Old
21) Suppose that during an economic boom, workers get higher wages. They do not expect the boom to last, and expect wages to return to their usual level. As a result, during the boom (compared to usual times),
A) they are likely to want to work more hours.
B) they are likely to work less hours.
C) they are likely to work the same hours as usual.
D) the answer is uncertain: it depends on which is stronger, the income or substitution effect.
Answer: A
Question Status: Old
22) A child-support assurance program that guarantees support payments to a mother regardless of her income but which doesn't increase the amount she will receive when not working will tend to ________ labor force participation rates while ________ desired hours of work among those with jobs.
A) increase; reducing
B) increase; increasing
C) reduce; reducing
D) reduce; increasing
Answer: A
Question Status: Old
23) Most people travel more and enjoy more leisure when they are elderly than when they are middle-aged. This can be explained by
A) income effects due to decreasing wages.
B) substitution effects due to increasing wages.
C) life-cycle considerations.
D) the fact that their time is relatively expensive.
Answer: C
Question Status: Old
24) If someone enjoys household production (such as raising children) this
A) would be shown by a shift in his budget constraint.
B) will make his household production isoquant curves flatter than otherwise.
C) is the same as being more productive in household production.
D) will make his household production isoquant curves steeper than otherwise.
Answer: C
Question Status: Old
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25) If the slopes between income and leisure on all indifference curves varies only by the level of income but remains unchanged by the hours of leisure, then
A) the substitution effect of a wage increase will be large.
B) the substitution effect of a wage increase will be small.
C) the income effect of a wage increase will be large.
D) the income effect of a wage increase will be small.
Answer: C
Question Status: Old
26) Due to a change in job title, a married woman decides to increase her hours worked outside the home (but with no increase in annual pay). As a consequence, her husband decides to work fewer hours in the home. This suggests
A) the husband and wife are complements in household production.
B) the husband and wife are substitutes in household production.
C) the husband and wife are substitutes in the consumption of household commodities.
D) none of the above.
Answer: A
Question Status: Old
27) Over a lifetime, if the income effect dominates the substitution effect, then
A) an expected increase in the wage will reduce work hours.
B) an expected increase in the wage will increase work hours.
C) an expected increase in the wage will leave work hours unchanged.
D) any wage increase, expected or unexpected, will reduce work hours in this case.
Answer: B
Question Status: Old
28) Which of the following events would encourage an older worker to retire at a later age (for example, at 64 instead of 62)?
A) a decrease in social security benefits paid to the worker
B) adjusting social security payments so that the implicit penalty for delaying retirement is increased
C) a shortening of the worker's life expectancy
D) an unexpected increase in the wage paid to the worker
Answer: D
Question Status: Revised
29) A single mother is currently paying childcare cost of $10 an hour and she works 8 hours a day. The government then provides "free" child care, raising the property tax on the mother's home by $80 a day. The effect of this event will be to
A) cause the mother to work less hours.
B) cause the mother to work the same hours.
C) cause the mother to work more hours.
D) cannot tell without knowing which effect dominates: the income or substitution effect.
Answer: C
Question Status: Old
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30) Sally is single. Her income rises because of her wise stock investments, but her wage rate stays the same. In the labor supply model that replaces "leisure" with "household production time," the increase in income will likely
A) increase work hours as she spends less time in the household consuming more commodities.
B) increase work hours as her higher income allows her to buy goods that make her more efficient in the household.
C) decrease work hours because higher income people get more pleasure from working than being in the household.
D) decrease work hours as she spends more time in the household consuming more commodities.
Answer: D
Question Status: Old
31) In the labor supply model that emphasizes household production time, restaurant meals will be more in demand, other things the same, in single households with
A) high wages and high income.
B) high wages and low income.
C) low wages and high income.
D) low wages and low income.
Answer: A
Question Status: Old
32) In a two-person household, assume Tracy earns the most income and is totally incompetent in raising children. The other person in the household, Pat, is competent at raising children. Pat is more likely to stay at home and raise the child when
A) Tracy's income is high and Pat's wage is low.
B) Tracy's income is low and Pat's wage is low.
C) Tracy's income is low and Pat's wage is high.
D) Tracy's income is high and Pat's wage is high.
Answer: A
Question Status: Old
33) Suppose day-care centers charge by the hour (with no daily fixed costs). The government then subsidizes day-care, cutting the hourly cost. Assume the income effect dominates the substitution effect for working mothers. The effect of the subsidy will be to ________ the labor force participation rate of parents with small children and to ________ the work hours of working parents with small children.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decease; decrease
Answer: B
Question Status: Old
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34) The government raises taxes on wages by 20% and splits the money evenly across households as "free money" such that the average household gets back what it paid extra in taxes. In a household where the dollars collected by the 20% added tax initially equals the dollars received as free money, their work hours are likely to
A) increase.
B) decrease.
C) increase if the income effect dominates the substation effect.
D) remain unchanged.
Answer: B
Question Status: Old
35) Consider the indifference curves in the graph above. Why are the indifference curves negatively sloped? Why are the indifference curves convex to the origin of the graph?
Answer: The indifference curves are negatively sloped because, at a given level of income, additional household time increases utility. In order to maintain a constant level of utility, therefore, an increase in household time must be accompanied by a reduction in income.
The indifference curves are convex to the origin of the graph because individuals find it increasingly difficult to substitute purchased goods for goods produced at home and vice versa.
Question Status: New
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36) Suppose that Sally has 112 hours of time per week to allocate between market work and household time, earns a wage of $12 per hour if she works, and receives $30 per week in nonlabor income. Graph Sally's budget constraint. If Sally's market wage were $15 per hour, how would that affect Sally's budget constraint? Show graphically.
Answer: The graph should have income on the vertical axis and household time on the horizontal axis. The budget constraint is linear, with slope of $12 per hour of time, vertical intercept of $1,374, and a second point at 112 hours of household time and income of $30.
If the wage is $15 per hour, the budget constraint is unchanged if Sally doesn't work (household time = 112 hours and income = $30), and is otherwise steeper with slope of $15 per hour of time and vertical intercept of $1,710.
Question Status: New
37) Suppose that Lizzie has a toddler (Benjy). Benjy is a "busy" boy and Lizzie is uncomfortable having others (relatives, babysitters, etc.) care for Benjy. Characterize graphically Lizzie's current indifference curves (income on the vertical axis and household time on the horizontal axis). As Benjy gets older, what, if anything will happen to Lizzie's indifference curves? What are the implications for Lizzie's labor supply?
Answer: At present, because of her reticence to leave Benjy in the care of others, Lizzie has very steep indifference curves. She would have to be compensated with a large increase in income if she were to reduce her time at home. As a consequence, it's likely that Lizzie does not participate in the labor force at present. As Benjy ages and becomes less of a handful, we would predict that Lizzie's indifference curves will flatten out as her household production time becomes less of a necessity. As this happens, it will become more likely that Lizzie's optimal income/household time choice incorporates some time spent working for pay.
Question Status: New
38) What is a "collective" model of household decision-making? How does a collective model of household decision-making account for wives spending more time in household production than husbands?
Answer: The collective model of household decision-making has partners with their own individual utility functions who bargain over the allocation of each other's time to household production and market work. Couples in this model determine which partner is relatively more productive at home and which is relatively more productive at market work. Historically, female wage rates have been less than male wage rates, implying a relatively larger loss in income if the husband stays home to do the household production. Because of socialization, it has also been the case that wives have been more productive at household activities than husbands. Both factors account for wives spending more time engaged in household production. In the future, these roles may change if and to the extent wage inequality between men and women disappears and to the extent that social/cultural attitudes change with respect to gender based differences in relative household productivity.
Question Status: New
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39) Suppose that a cultural trend causes people to attach a growing value or higher status to purchased goods that are easily observed by others and less value on commodities produced in the home. What are the labor supply implications of such a trend?
Answer: The trend described would flatten the indifference curves of household members specializing in household production. As a consequence, we would expect fewer households where one individual specializes in production of commodities and more time at paid work by both partners.
Question Status: New
40) Suppose that a married woman decides to increase her hours worked outside of the home. What impact on her husband's labor supply is predicted by theory?
Answer: The effect on the husband's labor supply is theoretically ambiguous. On the one hand, the husband's marginal productivity in home production may increase, as he needs to take over chores previously performed by his wife. As a result, his indifference curves steepen and he reduces his paid hours of work. On the other hand, husband and wife time spent together is complementary. The greater the degree of this complementarity, the more likely is it that a reduction in hours spent at home by the wife will cause a reduction in the value the husband attaches to the marginal hour of his home time. As a consequence, the husband's indifference curves flatten and his hours spent at paid work increase.
Question Status: New
41) What is the distinction between the added worker effect and the discouraged worker effect? Which effect tends to dominate quantitatively?
Answer: Both effects occur during a recession. The added worker effect is the increase in the size of the labor force that occurs in households where the primary breadwinner has lost his job due to a recession. In an effort to maintain family income level, family members not previously working decide to enter the labor force because of the added worker effect. The discouraged worker effect, on the other hand, is the reduction in the size of the labor force that occurs because recessionary conditions reduce the probability of finding work and the wage one is likely to be paid. With lower likelihood of finding work and reduced expected wages, individuals decide to specialize in household production activities and stop actively seeking work. Given the Bureau of Labor Statistics' definition of unemployment, such individuals are not counted as unemployed and therefore the size of the labor force shrinks due to the discouraged worker effect. Quantitatively speaking, the discouraged worker effect is larger in absolute terms than the added worker effect. The added worker effect only affects households where the primary breadwinner has lost his job, which is a relatively small segment of households, even in recessions. The discouraged worker effect may matter for any household, regardless of whether the primary breadwinner is working or not working.
Question Status: New
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42) How does a life cycle model of labor supply account for the high labor force participation rate of males 25 to 50 years old?
Answer: In the life cycle model of labor supply, individuals make labor supply decisions by comparing market and home productivities over the course of time. People are more likely to participate in the labor force when their market productivity is relatively high compared to their home productivity. Market productivity tends to vary over the life cycle for males in a predictable pattern (see Figure 7.3a), being relatively low in the early years, rising to a peak in middle years, and then falling off again in later years. Taking the life cycle profile of home productivity as relatively flat and constant, the life cycle perspective implies that it's most likely that market productivity exceeds home productivity for males in the middle years (25 to 50) due to the humped profile of market productivity. When males are young and when they are older, it's more likely that home productivity exceeds market productivity because market productivity is low in the early years due to lack of education and experience and is low in later years due to skills depreciation and obsolescence.
Question Status: New
43) Suppose the XYZ Company wants to incentivize older workers to retire in their early 60s. How could the XYZ Company accomplish this objective using its defined benefit pension plan? Illustrate your discussion graphically.
Answer: The student should draw a graph like Figure 7.4 with discounted lifetime income on the vertical axis and household time on the horizontal axis. The firm should structure the payout of the pension plan to award generous benefits to those who retire at the company's desired age, and the plan should reduce the present value of the pension benefit to those who delay retirement beyond the desired age. One simple way to accomplish the latter objective is to simply pay the same fixed annual benefit. Such a pension plan will flatten the retirement budget constraint resulting in both a substitution effect and an income effect favoring earlier rather than later retirement.
Question Status: New
44) Congress is considering providing a child-care subsidy of $50 per week to mothers that work at least 16 hours per week. What are the labor market implications of such a program? Illustrate your discussion with the appropriate graphical analysis.
Answer: Fixed costs of child care create a spiked budget constraint as in Figure 7.5. Some mothers will find not working at all to be more attractive than working and bearing the child care costs. A subsidy of $50 per week effectively shifts the budget constraint to the northeast such that some previously out of the labor force will be drawn into the labor force because the subsidy eliminates at least some of the income lost to child care costs from working. For those mothers already in the labor force, the subsidy creates an income effect leading to fewer hours worked (but not less than 16 hours per week). See Figure 7.6.
Question Status: New
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in charge of the little boy, instead of discouraging him when he showed an inclination to become confidential, she sat down on a chair by the bed where she could watch him, and allowed him to talk.
"Have you seen Roger lately, Cousin Becky?" he asked.
"Not since the night of your accident, my dear," she answered. "You know the holidays have commenced, and your cousins and your aunt and uncle have gone to Lynn."
"What, without you?" he cried in surprise.
"Of course," Cousin Becky replied with a soft laugh, "or I should not be here with you now."
"But I thought you intended going with them?"
"I hope to join them later on when you are better, my dear boy. I have promised your mother to remain at the Rookery till you are properly convalescent."
"Thank you so much," he said gratefully, "I—I really don't think I can do without you yet; that is, unless you want to go very particularly. Do you know there was a talk of my going to Lynn too? Mother and father wished it; but Roger didn't want me, and I don't suppose Polly did either."
"Why not, my dear?"
"Because—because—Roger said I was not to be trusted, and, it's true, I'm not. You don't know what a bad boy I've been, no one knows except Roger, I had to tell him."
He raised himself in bed as he spoke and looked at his companion with feverishly bright eyes. "You found the Calais Noble," he said with a slight sob, "so you know something about it, but not all. I took it from father's cabinet to show it to a boy at school, weeks ago, and I lost it; but I never told father, I was afraid to, because it's a valuable