Question

2. Check each of the following that are true concerning the supply of labor or leisure.

		when the substitution effect is greater then the income effect, wages increase the supply of labor
		the substitute effect has the same impact on the worker as the income effect
		the substitute effect has the opposite impact on the worker as the income effect
		the income effect applies when people choose more leisure and less work
		If (MPL/cost of labor) is greater than (MPC/cost of capital), more labor should be employed
		critics of marginal productivity theory argue that the theory is not universally applicable because of market failures.

Answer 1

when the substitution effect is greater then the income effect, wages increase the supply of labor
the substitute effect has the opposite impact on the worker as the income effect
the income effect applies when people choose more leisure and less work
If (MPL/cost of labor) is greater than (MPC/cost of capital), more labor should be employed
critics of marginal productivity theory argue that the theory is not universally applicable because of market failures.

(When SE > IE, supply of labor is increasing with wage. When IE > SE, more leisure is consumed. When MPL/PL > MPC/PC then more labor should be employed. Criticism of MP theory is that it is not applicable because of market failures.)