Practice Question Set Chapter 7

Practice Question Set Chapter 7
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Household production consists of
A) any time spent at home by any family member.
B) any commodities which are produced at home and yield utility to the family.
C) any commodities purchased for use in the home.
D) any commodities which are produced at home and then sold.
1)
2) John, a bachelor, after reading a book on homemaking, suddenly becomes twice as productive in
doing household chores. This will likely make his indifference curves (between income on the
vertical axis and household time on the horizontal axis) become
A) steeper.
B) more bowed in.
C) flatter.
D) less bowed in.
2)
3) An increase in the daily cost of child care would likely
A) increase the utility of a family with young children.
B) increase the labor force participation rate of mothers.
C) increase the hours of work of mothers who continue to work.
D) increase the utility from not working.
3)
4) If someone enjoys household production (such as raising children) this
A) will make his household production isoquant curves flatter than otherwise.
B) is the same as being more productive in household production.
C) will make his household production isoquant curves steeper than otherwise.
D) would be shown by a shift in his budget constraint.
4)
5) Over a lifetime, if the income effect dominates the substitution effect, then
A) an expected increase in the wage will leave work hours unchanged.
B) any wage increase, expected or unexpected, will reduce work hours in this case.
C) an expected increase in the wage will reduce work hours.
D) an expected increase in the wage will increase work hours.
5)
6) Suppose day-care centers charge by the hour (with no daily fixed costs). The government then
subsidizes day-care, cutting the hourly cost. Assume the income effect dominates the
substitution effect for working mothers. The effect of the subsidy will be to ________ the labor
force participation rate of parents with small children and to ________ the work hours of
working parents with small children.
A) decease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease
6)
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7) Sally is single. Her income rises because of her wise stock investments, but her wage rate stays
the same. In the labor supply model that replaces "leisure" with "household production time,"
the increase in income will likely
A) increase work hours as she spends less time in the household consuming more
commodities.
B) decrease work hours because higher income people get more pleasure from working than
being in the household.
C) decrease work hours as she spends more time in the household consuming more
commodities.
D) increase work hours as her higher income allows her to buy goods that make her more
efficient in the household.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
8) Consider the indifference curves in the graph above. Why are the indifference curves
negatively sloped? Why are the indifference curves convex to the origin of the graph?
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8)
7)
Answer Key
Testname: UNTITLED1
1) B
2) A
3) C
4) B
5) D
6) D
7) C
8) The indifference curves are negatively sloped because, at a given level of income, additional household time
increases utility. In order to maintain a constant level of utility, therefore, an increase in household time must be
accompanied by a reduction in income.
The indifference curves are convex to the origin of the graph because individuals find it increasingly difficult to
substitute purchased goods for goods produced at home and vice versa.
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