16. Doubling the nominal wage (W) but not the nominal general price level (P) in
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16. Doubling the nominal wage (W) but not the nominal general price level (P) in our con- (1-t)W) will result in the same sumption leisure budget constraint (Pe+ (1-t)W optimum choice of leisure: a. Always b. Sometimes c. Never 17. Doubling the nominal general price level (P) but not the nominal wage (W) in our con- sumption leisure budget constraint (Pet (1-1)WI = (1-t)W) will result in the same optimum choice of leisure: a. Always b. Sometimes c. Never 18. Increasing the tax rate in our consumption leisure budget constraint (Pc + (-0w (1 -t)W) will result in the same optimum choice of leisure: a. Always b. Sometimes c. Never 19. Which policy argunents rely on a "substitution cffect"? (Cirele all that apply) a. An increase in labor taxes will cause people to work less. . Dividend income tax should be higher than what it is currently c. Offering higher overtime wage rate increases labor supplied. d. A "Universal Basic Income" (every American getting a hump sum payment every year)Explanation / Answer
16. Ans. b.Sometimes. It is because when substitution effect is greater than income effect then optimum leisure hour will increase and if substitution effect is less than income effect then leisure hour will decline. Now if the case be like that where income effect is exactly equal to substitution effect then optimum leisure hour will not change. This can only happen sometimes.
17. If price level becomes double then the optimum leisure hour can not be same as before. Because the real wage will fall and people will substitute the leisure and work more to compensate the income fall due to rise in price level. So answer will be c. Never.
18. Increase in tax rate also causes fall in income and this may resulted to work more through income effect and also work less through substitution effect sometimes. Because people will have disincentive to work more. In this situation also the optimum leisure choice can be same sometimes only when income and substitution effect equal. So answer is b. Sometimes.
19. The answer will be a and can. In case of a and c we will get the people will have substitution effect.
20. Ans. An outward kink. This is because as if more consumption is possible.
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