Question 3.33 Choose the correct answerThe following figure shows a model of free time and consumption per day across countries in 2020. Assume that the nationals of the US and Turkey have the same preferences (the same set of indifference curves) and those of Mexico and Netherlands have the same preferences. From the information given, read the following statements and select the correct one.

Question

BlackTom AI · Accepted Answer

An increase in the wage pivots the budget line (goods vs. free time) to become steeper: leisure becomes more costly in terms of forgone goods, producing a substitution effect (work more, less leisure) and an income effect (richer, may choose more leisure). These two effects determine the net change in leisure (and goods) when wages rise.

1) Relevant concepts
- Budget line slope = wage; pivot about the endowment point (24 hours, 0 goods).
- Substitution effect: higher wage → leisure relatively more expensive → move along indifference curve toward less leisure (more labor).
- Income effect: higher wage → higher purchasing power → if leisure is a normal good, income effect yields more leisure (less labor).
- Total effect = substitution effect + income effect.

2) Step-by-step reasoning using the figure
- Turkey’s initial choice sits at a point with roughly 19 hours of free time and modest goods. Raising the Turkish wage to the U.S. wage rotates Turkey’s budget line to the steeper line that goes through the same endowment.
- The optimal choice for someone with the US/Turkey indifference-map will move along indifference curves where the marginal rate of substitution equals the new wage. Graphically the tangency point for the higher wage lies very close to Turkey’s original free-time level.
- Decompose the movement: the substitution effect would pull Turks toward less free time (to the left), while the income effect would pull toward more free time (to the right). On the graph these two movements are of roughly equal magnitude for Turkey, so the net change in free time is small.

3) Intermediate (conceptual) calculation
- Let ΔL_total = ΔL_substitution + ΔL_income. Observed ΔL_total ≈ 0 ⇒ ΔL_substitution ≈ −ΔL_income in magnitude.

4) Why the correct answer is correct
- Option c states that income and substitution effects roughly cancel for Turkish nationals when wage rises to U.S. level. The diagram’s tangency points and the very small net movement in free time for Turkey directly illustrate this cancellation.

5) Why the other choices are incorrect
- a: If Turkey’s wage increased, goods consumption would almost certainly rise (steeper budget allows more goods at a given leisure choice) or at least not plausibly fall below Netherlands’ given relative positions; the figure does not support goods dropping below Netherlands after a wage increase.
- b: For Mexico (which shares preferences with Netherlands), raising Mexico’s wage to Netherlands’ level would likely produce a net increase in leisure (decrease in labour supply) rather than an increase in labour supply; the income effect dominates for those preferences as shown by the positions.
- d: The problem statement explicitly tells us US and Turkey share preferences and Mexico and Netherlands share preferences; the figure’s indifference-curve shapes near US and Netherlands are visibly different, so US and Dutch nationals could not be assumed to have the same preferences.

Conclusion: The diagram and decomposition of effects confirm option c is correct: for Turkish nationals, the income and substitution effects roughly cancel when their wage rises to the US level.

类似问题

The figure shows the indifference curves of a student for the two ‘goods’, free time and final grade. Based on this information, read the following statements and select the correct one(s).

Question 3.8 Choose the correct answer(s)The figure shows the indifference curves of a student for the two ‘goods’, free time and final grade. Based on this information, read the following statements and select the correct one(s).

Question 3.12 Choose the correct answer(s)The diagram shows a student’s indifference curves for hours of free time per day and final grade. Based on this graph, read the following statements and select the correct one(s).

Question 3.8 Choose the correct answer(s)The figure shows the indifference curves of a student for the two ‘goods’, free time and final grade. Based on this information, read the following statements and select the correct one(s).

Question 3.17 Choose the correct answer(s)The following diagram shows a farmer’s choice between free time and grain before (A) and after (B) an improvement in technology. Based on this information, read the following statements and select the correct one(s).

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