Suppose your tastes over consumption and leisure have constant elasticity of substitution. I observe that, when your wage went up, you continued to work the same number of hours. From this, I can conclude that you have Cobb-Douglas tastes.
Answer the following statement true (T) or false (F)
True
Rationale: Cobb-Douglas tastes are CES tastes with elasticity of substitution of 1 -- which is what is required for substitution and wealth effects to be exactly offsetting in this case.
You might also like to view...
Assume the current price investors are willing to pay on a $1,000 face value one-year Treasury bill is $980.39, and investors expect that they will be willing to pay $961.54 on a $1,000 face value one-year Treasury bill one year from now
According to the expectations hypothesis, the current interest rate (per year) on a $1,000 face value two-year Treasury bill should be A) 3%. B) 4%. C) 5%. D) 6%.
The government reduces the corporate profits tax. As a result, corporate profits increase. This will
A. increase the nonlabor income of households, causing consumption to increase and labor supply to increase. B. increase the nonlabor income of households, causing consumption to increase and labor supply to decrease. C. increase the nonlabor income of households, causing consumption to increase and labor supply to increase or decrease depending on the relative magnitude of the income and substitution effects. D. have no effect on households.
Use the figure below to answer the following question.
In the past few years, the quantity of donuts demanded has increased due to changes in the prices of donuts. This would be illustrated by a change from
A. point 5 to point 2. B. point 1 to point 2. C. point 3 to point 6. D. point 4 to point 6.
A collusive agreement between two duopolists is similar to the prisoners' dilemma because in both games
A) the best outcome is always achieved. B) each players strategy depends on what the other player does. C) the Nash equilibrium is not the best outcome for the players. D) All of the above answers are correct.