Select below the answer that best completes the sentence. When an individual decides to allocate their time between labour and leisure, the opportunity cost of leisure is due to the fact that: O leisure reduces how much time left the individual has for consumption. O every hour of leisure is an hour not earning labour income. O leisure decreases the marginal utility of consumption. O most leisure activities are costly.
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- My Moodle My Favou tion 6 An individuals utility function is given by ret rered U = 340x1 + 960x2 + 2x1x2 – 2a- a/2, ed out of when the weekly amount of leisure is x1 132 and earned income is 12 = 760 answer the following: 1. The marginal utility of x1 is ag tion 2. The marginal utility of x2 is 3. Use the small increments formula to estimate the change in the utility when r1 decreases by 1 and x2 increases by 4. The change = 4. Does the law of diminishing marginal utility hold? 5. The MRCS at a given values is Enter non-integer numerical values as decimals to at least 3 decimal places. Note: you must use a. and not , for a decimal point. Next page revious page Mock paper ► - Working from video in SVG Jump to... formatWhich best exemplifes the concept of Opportunity cost? O additional units of consumption produce less additional utility than the previous unit utility cannot be compared across different people O the more money a consumer spends, the less is available to purchase other goods utility always increases through additional consumptionA family of four has an income of $15,000 today and will earn $24,000 tomorrow. i). If the family consumes $11,500 in the first period and $15,000 in the second period, whatis the interest rate? ii). If the family consumes $15,000 in the first period and $13,500 in the second period, whatis the interest rate? iii). Explain the income and substitution effects and discuss which effect dominated after theinterest rate change from part (a.) to part (b.).
- Explain substitution and income effect by citing an exampleBased on research into marginal rates of substitution, which of the following is true regarding breakfast cereals? O younger people prefer high fiber cereals O younger people prefer high sugar cereals O older people prefer cereal with prizes in the box O older people have a higher MRS of sugar for fiberASAP
- The graph of the budget line below has dollars on the vertical axis and food on the horizontal axis. Which statement is false? D 100 Food The vertical intercept represents all money available for purchasing. The distance OA shows the amount of money spent on OD amount of food. If the amount of money available is known in this graph, then the absolute and relative price of food is known also. The horizontal intercept represents all the food the consumer could purchase with the budget available.In this particular example, what are the contributions of the income and substitution effects?D E B 04 What does point D on this graph represent? O An optimal choice O A choice on the budget constraint O An impossible choice given the income O A choice that would result in income left over
- Economist George Stigler once wrote that, according to consumer theory, “ifconsumers do not buy less of a commodity when their incomes rise, they will surelybuy less when the price of the commodity rises.” Explain this statement using theconcepts of income and substitution effect. An individual's utility function is given by u = 1000 x, + 450 x. + 5x, x. - 2x-x where x, is the amount of leisure measured in hours per week and x,is income earned measured in cedis per week. Det er mine the value of the marginal utilities, when x, = 138 and x= 500. Hence est imate the change in utility if the individual works for an extra hour, which increa ses earned income by GH¢ 15 per week. Does the law of diminishing ut ility hold for this function? %3DI understand the substitution effect, but I really need to understand the Income effect. Please explain that and thank you in advanced ?