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1. TRUE or FALSE and EXPLAIN: Label each statement TRUE or FALSE, and
rigorously justify your answer.
b. TRUE__ “In the standard model of labor supply, a marginal increase in the
market wage rate, ceteris paribus, unambiguously increases hours of work for
an individual who, before the wage increase, uses all of his time to consume
leisure.
π*(p,w) = p ∙ ln(p/w) – p
where p denotes the price of output and w denotes the per-unit price of
labor. What restriction must be placed on the relationship between p and
w? Why?
∂V/∂M = (1/M 2) ( Px Py ) 2
1/2 1/2
U(X,Y) = Y – X -1
5. A consumer is observed to purchase the bundle (X0, Y0) = (2, 3) when per-unit
prices are (Px0, Py0) = (2, 1). She is subsequently observed to purchase the
bundle (X1, Y1) = (1, 2) when per-unit prices are (Px1, Py1) = (1, 2). Is her
behavior consistent with the weak axiom of revealed preference? Why or why
not?