,Chapter 02 - Labour Supply: Individual Attachment to the Labour Market
Chapter 02
Labour Supply: Individual Attachment to the Labour Market
Multiple Choice Questions
1. Consider figure 2.98 in the textbook. Given a wage increase from W0 to W1, the distance
between I' and I1 represents:
A. The substitution effect
B. The income effect
C. The net effect of both the substitution effect and the income effect
D. The equilibrium choice for hours worked
E. The equilibrium choice for leisure
Blooms: Analyze
Difficulty: Medium
Learning Objective: 02-04 Explain, using diagrams, how an increase in the wage rate leads to offsetting income and substitution effects, and
how this yields an ambiguous effect of wage changes on labour supply.
Topic: 02-11 Comparative Statics
2. Empirical literature on labour supply patterns for married women tends to find all of the
following, except:
A. Labour market participation rate for married women was highest in the 35-44 age group.
B. Women with children have lower rates of labour force participation.
C. The higher the education level, the higher the labour force participation rate.
D. The higher the husband's income, the higher the labour force participation rate.
E. Participation rate for all women is around 76 percent.
Blooms: Analyze
Difficulty: Easy
Learning Objective: 02-05 Interpret the economic and other factors affecting a married woman’s decision to work, and show how this
decision can be captured within the income-leisure (labour supply) model.
Topic: 02-16 Participation, Married Women
2-1
,Chapter 02 - Labour Supply: Individual Attachment to the Labour Market
3. Which of the following statements concerning the elasticity of labour supply is false?
A. The overall labour supply for both sexes is likely to be downward sloping.
B. It is generally higher for women than for men.
C. The compensated elasticity (reflecting the substitution effect) tends to be higher in
magnitude than the uncompensated, gross elasticity.
D. The overall labour supply for both sexes is likely to be upward sloping
E. The elasticity of labour supply with respect to income is negative.
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-05 Interpret the economic and other factors affecting a married woman’s decision to work, and show how this
decision can be captured within the income-leisure (labour supply) model.
Topic: 02-17 Evidence of the Elasticity of Labour Supply
4. Which of the following statements is false?
A. In periods of high unemployment, discouraged workers tend to withdraw from the labour
force.
B. In periods of low unemployment, discouraged workers tend to re-enter the labour force.
C. In periods of high unemployment, added workers (particularly married women) tend to
enter the labour force.
D. Discouraged workers contribute to the phenomenon of hidden unemployment.
E. In periods of high unemployment, added workers may increase labour market participation
rate.
Blooms: Apply
Difficulty: Medium
Learning Objective: 02-05 Interpret the economic and other factors affecting a married woman’s decision to work, and show how this
decision can be captured within the income-leisure (labour supply) model.
Topic: 02-19 Added and Discouraged Worker Effects
2-2
, Chapter 02 - Labour Supply: Individual Attachment to the Labour Market
5. Suppose a worker is observed to be working but is forced to work fewer hours than she
really wants to work. Which of the following statements is true?
A. The indifference curve that she is on is tangent to the budget line.
B. She is on an indifference curve which is lower than the one which is tangent to the budget
line.
C. She is on an indifference curve which is higher than the one which is tangent to the budget
line.
D. She is on an indifference curve which is lower than the one which passes through the point
on the budget line corresponding to zero hours of work.
E. She is not on an indifference curve.
Blooms: Analyze
Difficulty: Hard
Learning Objective: 02-02 Illustrate graphically how the income-leisure model reflects the trade-offs that consumers face in deciding
whether and how much to work.
Learning Objective: 02-03 Distinguish theoretically between the work choices made by individuals and the economic opportunities that they
choose from.
Topic: 02-10 The Consumer's Optimum
6. The slope of the indifference curve at the lower left-hand corner of the income/leisure
diagram, where zero hours are supplied to the labour market, is equal to:
A. the prevailing market wage.
B. the reservation wage.
C. the level of non-market income.
D. the slope of the budget constraint.
E. the difference between the market wage and the reservation wage
Blooms: Remember
Difficulty: Easy
Learning Objective: 02-02 Illustrate graphically how the income-leisure model reflects the trade-offs that consumers face in deciding
whether and how much to work.
Learning Objective: 02-03 Distinguish theoretically between the work choices made by individuals and the economic opportunities that they
choose from.
Topic: 02-10 The Consumer's Optimum
2-3
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