Author Question: Serafina was earning 75 per hour and working 50 hours per week. Serafina's wage rose to 90 per hour, ... (Read 438 times)

karen · **on:** Jun 29, 2018

Serafina was earning 75 per hour and working 50 hours per week. Serafina's wage rose to 90 per hour, and as a result, she now works 60 hours per week.

What can you conclude from this information about the income effect and the substitution effect of a wage change for Serafina?

Question 2

At macroeconomic equilibrium, total ________ equals total ________.

A) consumption; production B) taxes; transfers
C) investment; inventories D) spending; production

jxjsniuniu · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

We can conclude that Serafina's substitution effect (higher wages lead to higher opportunity cost of leisure, leads to lower leisure, leads to more labor) is greater than her income effect (higher wages lead to higher income, leads to more leisure, leads to less labor). As a result, Serafina works more hours as her wage increases.

Answer to Question 2

D