Instructions:

1.   This assignment covers content from Chapters 1, 2, 3 , 4 and 5. It will help prepare for the midterm .

2.   Assignment 1 has a mixed format with MCQ and problems (25 questions in total) . MCQ questions will be worth 1 mark each . The short problems will be worth 3 marks each. Total marks for this assignment will be 31.

3.   For the problems , you will need to submit a numerical answer and a screenshot of your working or marks could be deducted .

4.   It will be due February 10, Friday 5pm . The OWL tool will automatically submit the assignment by the due date/time; however, it is advised that students submit their work themselves to ensure they know exactly what is submitted to OWL .

Section 1: MCQ

1.   An increase in non-labour income will guarantee that the consumer will move to a higher indifference curve .

a)  True

b)  False

2.   Income effects always move in the opposite direction as substitution effects .

a)  True

b)  False

3.   For a person receiving welfare benefit, a decrease in welfare benefit causes the individual’s reservation wage to fall .

a)  True

b)  False

4.   In the childcare model with fixed costs that is discussed in class, if there is an increase in the fixed cost of childcare, the reservation wage remains unchanged .

a)  True

b)  False

5.   In the CWB/EITC model that is discussed in class, consider a worker who after the introduction of the policy moves to the ‘flat’ region . Only income effects are observed for this worker .

a)  True

b)  False

6.   Which of the following regarding to an individual’s budget constraint is correct?

a)  The level of non-labour income determines the intercept of the budget constraint .

b)  The slope of the budget constraint is determined by the reservation wage rate .

c)  The slope of the budget constraint is determined by the market wage rate .

d)  The slope of the budget constraint is higher for a full-time worker than for a part- time worker .

7.   For a worker who is deciding how many hours of labour to supply, all the following are true regarding the optimal choice except that:

a)  The income effect of a wage change equals the substitution effect .

b)  The marginal rate of substitution between income and leisure is equal to the wage rate .

c)  The market wage rate is at least equal to the reservation wage for a participant .

d)  The slope of the budget line equals the slope of the indifference curve .

8.   The income effect of a wage change

a)  Must always dominate the substitution effect if leisure is normal .

b)  Must always reinforce the substitution effect if leisure is normal .

c)  Must always counteract the substitution effect if leisure is normal .

d)  Is measured at the level of non-labour income .

9.   An individual with standard downward-sloping indifference curves will participate in the labour market provided

a)  The indifference curves between leisure and income are steep .

b)  A tangency between the budget constraint and the indifference curve is reached .

c)  At the point where leisure is at its maximum, the indifference curve is steeper than the budget constraint .

d)  At the point where leisure is at its maximum, the indifference curve is flatter than the budget constraint .

10. In the negative tax welfare system, the implicit tax rate

a)  Is the rate at which income is taxed .

b)  Is the rate at which the transfer is increased .

c)  Is the rate at which the transfer is decreased .

d)  None of the above

11. Welfare programs that guarantee a level of income, which is reduced dollar for dollar for every dollar earned, resulted in individuals receiving welfare to

a)  Increase their hours of work

b)  Decrease their hours of work

c)  Not change their hours of work

d)  Move off the welfare program

12. One way to measure the opportunity cost of an hour of leisure is

a)  The wage rate that an individual could earn for that hour .

b)  The cost of going to a restaurant every evening to eat .

c)  The cost of visiting a museum just for fun .

d)  The cost of the cleaning service that I hire to clean my house per hour .

13. An increase in the tax rate an individual pays on their labour income

a)   Shifts the budget constraint in the labour/leisure choice model to the right

b)  Shifts the budget constraint in the labour/leisure choice model to the left

c)  Rotates the budget constraint in the labour/leisure choice model to the left .

d)  Rotates the budget constraint in the labour/ leisure choice model to the right .

14. The income effect graphically is always denoted

a)  By movement along the original indifference curve, whereas the substitution effect is represented by a rotation of the budget line .

b)  By movement in the direction of the item that is becoming relatively more expensive .

c)  By movement from one indifference curve to another .

d)  By movement along the original indifference curve, whereas the substitution effect is represented by a parallel shift of the budget line .

15. Which of the following statements concerning subsidies for childcare expenses is true?

a)  They change the slope of the budget line .

b)  They discourage labour force participation .

c)  They tend to increase the reservation wage of working .

d)  They cause a strong substitution effect toward more working activity .

e)  They reduce the fixed costs of working .

16. Labour market is different from good market because of all the following except that

a)  It has various actors and various goals

b)  It operates under sociological, institutional and legislative constraints .

c)  There are more market imperfections .

d)  Wage rate is a complex price which serves a variety of functions .

e)  Profit maximization constraints do not apply .

17. Which of the following is not done by governments in the labour market?

a)  Establish the environment in which employees and employers interact .

b)  Determine the level of global competition

c)  Regulate the minimum wage and safety level

d)  Establish income maintenance schemes

e)  Regulate monopolies to protect the interests of consumers .

18. The slope of the indifference curve at the lower right-hand corner of the income/leisure diagram, where zero hours are supplied to the labour market, is equal to

a)  The prevailing market wage rate

b)  The reservation wage rate

c)  The slope of the budget constraint

d)  The highest wage available to an individual

e)  The lowest wage available to an individual

19. All of the following are sources of concern with income maintenance programs except that:

a)  They might reduce wages

b)  They might reduce work incentives

c)  They might be fiscally costly

d)  They might increase wages

e)  They might lower employment

20. The current wage rate is below Mary’s reservation wage . In the work-leisure choice model, if the wage rate increases to above her reservation wage, then:

a)  Mary will work less hours than before

b)  Mary will work enter the labour force .

c)  Mary will choose more leisure .

d)  Mary will leave the labor force .

e)  It does not matter to Mary’s decision regarding labour market participation .

21. The slope of an isoquant reflects:

a)   The marginal cost of labour

b)   The wage elasticity of the demand for labour

c)   The marginal productivity of capital

d)   The marginal productivity of labour

e)   The marginal rate of technical substitution between inputs

22. Demand for labour will be inelastic if

a)   Inputs can be easily substituted.

b)   Demand for output is not affected by a price increase.

c)   Labour cost accounts for a large portion of total cost.

d)   Supply of substitute inputs is elastic.