When an individual's wage rises, the substitution effect tends to
a. increase hours worked.
b. decrease hours worked.
c. leave hours worked unchanged.
d. it is impossible to predict what will happen to hours worked.
a
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If a profit-maximizing firm finds that price exceeds average variable cost and marginal revenue is greater than marginal cost, it should: a. reduce output, but continue producing in the short run. b. increase output
c. shut down. d. not alter its production level since it is earning a profit.
The creation of private property rights corrects negative externality problems in many cases because they
a. cannot create negative externalities b. create a strong incentive for the private owners to maintain the property c. can force the government to compensate the owners for the externality costs d. encourage people to become free riders e. always lead to the social optimal price and output levels
Refer to the graph above. Which of the following changes will shift AD 1 to AD 2?
A cut in personal and business taxes A shrinkage in the value of stocks and other financial assets An increase in the value of the dollar relative to other currencies An increase in real interest rates
Related to the Economics in Practice on page 26: Which one of the following occurs when an individual enters the paid work force?
A. The opportunity cost of time for housework increases, because money earned at a job can allow individuals to pay someone to do household chores that the individuals used to do themselves. B. The opportunity cost of time for housework decreases, because increased earning power makes individuals less likely to do their own housework. C. The opportunity cost of time for housework increases, because time spent on housework could be spent on money-earning activities. D. The opportunity cost of time for housework decreases, because as more people enter the work force, businesses have greater incentives to develop innovations that make housework more efficient.