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Practice mode Consumer Theory vs. Real Consumers

If leisure is a normal good, what effect will a rise in the wage have?

Correct answer B. It will increase the amount of labour supplied if the substitution effect outweighs the income effect

Explanation

A higher wage raises the cost of leisure, encouraging more work, but also raises income, which increases demand for leisure. Labour supply rises only when the substitution effect is stronger.

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Question 02 Consumer Theory vs. Real Consumers

Which statement about the result of a consumer’s optimisation process is NOT true?

Correct answer A. The consumer is indifferent between any two points on his budget constraint

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Question 04 Consumer Theory vs. Real Consumers

At what point does a consumer make the optimal purchase of any two goods?

Correct answer B. Where the consumer reaches the highest indifference curve while remaining on the budget constraint

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