Author Question: Which of the following best explains why the elasticity of supply of labor for an individual with a ... (Read 46 times)

azncindy619 · **on:** Jul 1, 2018

Which of the following best explains why the elasticity of supply of labor for an individual with a Cobb-Douglas utility function (for consumption and leisure) is zero?
a. Income and substitution effects are precisely offsetting.
b. The elasticity of substitution of leisure for consumption is zero.
c. Leisure is an inferior good.
d. Consumption is subject to diminishing marginal utility.

Question 2

You offer an extended warranty for your product that is purchased by a few customers. If the product typically fails 2 of the time, the claim rate will exceed 2 of warranty purchasers because
a. adverse selection will lead those who are more reckless to purchase the warranty
b. moral hazard will lead those who purchase to be more reckless
c. you systematically underestimate product failure rates
d. A and B