Consider the three combinations of leisure

Consider the three combinations of leisure

Questions 8 – 10 refer to the following diagram representing Larry’s budget constraint and preferences:

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Leisure

Income

A

B

C

8. Consider the three combinations of leisure and income represented by points A, B, and C. Which of the following is a correct statement?

a. Larry prefers A to B c. Larry prefers B to C

b. Larry prefers A to C d. Larry prefers C to A

9. Which of the following is a correct statement?

a. At A, Larry’s marginal valuation of leisure is higher than the market wage

b. At B, Larry’s marginal valuation of leisure is higher than the market wage

c. At C, Larry’s marginal valuation of leisure is lower than the market wage

d. At B, Larry values leisure the same amount as at A

10. At point A, Larry’s marginal rate of substitution of leisure for income:

a. exceeds the wage and Larry would like to work more hours

b. exceeds the wage and Larry would like to work fewer hours

c. is less than the wage and Larry would like to work more hours

d. is less than the wage and Larry would like to work fewer hours

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