According to the 'Answering the Headline' section, why was the overtime wage plan at Boxes Ltd. more effective than simply raising the hourly wage to 15 dollars?
Explanation
The headline problem provides a practical application of the income-leisure choice model, demonstrating how a carefully structured compensation plan can alter worker incentives more effectively than a simple wage increase by separating income and substitution effects.
Other questions
Which of the following is NOT one of the four basic properties of a consumer's preference ordering as discussed in the chapter?
What does an indifference curve represent?
A consumer has an income of 100 dollars, the price of good X is 10 dollars, and the price of good Y is 40 dollars. What is the market rate of substitution between goods X and Y?
If a consumer's income decreases while the prices of goods X and Y remain unchanged, what happens to the budget line?
At the point of consumer equilibrium, which of the following conditions is met?
The movement along a given indifference curve that results from a change in the relative prices of goods, holding real income constant, is known as the:
If a consumer is given a 10 dollar cash gift, how does this affect their budget line compared to receiving an in-kind gift of a 10 dollar fruitcake (good X)?
In the income-leisure choice model, what is the 'price' of an additional hour of leisure for a worker earning 10 dollars per hour?
How is the market demand curve derived from individual demand curves?
If a consumer's preferences are complete, it means that:
In Demonstration Problem 4-1, when the price of good X increases from 1 dollar to 5 dollars, what happens to the horizontal intercept of the budget line?
If good X is an inferior good, an increase in consumer income will lead to:
A 'buy one, get one free' offer for pizza, as analyzed in Figure 4-14, results in a budget line that:
According to the analysis in the chapter, why might a firm's manager who is paid a bonus based on the firm's output choose to produce more than the profit-maximizing level of output?
The property of diminishing marginal rate of substitution implies that indifference curves are:
If the price of good X decreases, the consumer's budget line will:
According to Inside Business 4-2, if the price of Xbox 360 game consoles is reduced, what is the expected impact on the consumption of PlayStation 3 consoles?
Inside Business 4-4 discusses the 'deadweight loss' of in-kind gifts. What is the primary reason for this loss?
If a consumer is indifferent between bundle A and bundle B, and also indifferent between bundle B and bundle C, the property of transitivity implies that:
What does the 'market rate of substitution' refer to?
If goods X and Y are complements, a decrease in the price of X will lead the consumer's equilibrium consumption of Y to:
In the income-leisure model from Demonstration Problem 4-3, a worker is offered a wage of 5 dollars per hour plus a fixed payment of 40 dollars. What are the maximum total earnings the worker can achieve in a 24-hour day?
What is the primary reason that a gift certificate to a specific store can be less preferred than a cash gift of the same dollar value, particularly if the store's goods are inferior?
The calculus-based approach in the chapter's appendix shows that the marginal rate of substitution (MRS) is equal to: