9. A person will choose not to participate in the labor force when: (a) the inco

Question

9. A person will choose not to participate in the labor force when: (a) the income effect is greater than the substitution effect. (b) the substitution effect is greater than the income effect. (c) the market wage is less than the reservation wage. (d) the reservation wage is less than the market wage. 10. If the supply of college graduates is greater than the demand, the human capital model predicts: (a) the relative college wage (the wage of college graduates as a percent of the wage of high school graduates) should fall (b) the private and social rate of return to college education should fall. (c) fewer people will decide to attend college. (d) all of the above. 11. Two people make the same dollar expenditure on human capital investment. This implies: (a) they have the same annual income. (b) they earn the same marginal return. (c) they are of equal ability. (d) none of the above

Explanation / Answer

9. C

Explanation: The reservation wage is the minimum wage which is required for a laborer to participate in the labor market. If the market wage rate is less than the reservation wage, a laborer will be unwilling to participate.

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