After reading an economics textbook about labor supply and utility maximization,
ID: 1107166 • Letter: A
Question
After reading an economics textbook about labor supply and utility maximization, Amelia Ruiz said, “I don’t allocate my time like that.” Her professor replied,
a. “You caught us. Economists do not know what they are talking about.”
b. “This proves that you will always choose to spend your time in nonmarket work.”
c. “You act as if you allocated your time to derive the same expected net marginal utility from the last unit of time spent in each alternative use.”
“Don’t you want to use your unlimited resources to satisfy your finite wants?”
e. “It is obvious that labor supply is a derived demand based on marginal revenue product.”
a. “You caught us. Economists do not know what they are talking about.”
b. “This proves that you will always choose to spend your time in nonmarket work.”
c. “You act as if you allocated your time to derive the same expected net marginal utility from the last unit of time spent in each alternative use.”
d.“Don’t you want to use your unlimited resources to satisfy your finite wants?”
e. “It is obvious that labor supply is a derived demand based on marginal revenue product.”
Explanation / Answer
The right answer is :
c. “You act as if you allocated your time to derive the same expected net marginal utility from the last unit of time spent in each alternative use.”
Explanation: Even though Amelia is not consciously aware of how she allocates her time into different usages, she actually allocates the time in a way that maximizes utility. She does not calculate utility in a formal way, the way an economic model suggets. But, unconsciously, she allocates her time in such a way that the net marginal utility from the last unit of time spent in each alternative use.
c. “You act as if you allocated your time to derive the same expected net marginal utility from the last unit of time spent in each alternative use.”
Explanation: Even though Amelia is not consciously aware of how she allocates her time into different usages, she actually allocates the time in a way that maximizes utility. She does not calculate utility in a formal way, the way an economic model suggets. But, unconsciously, she allocates her time in such a way that the net marginal utility from the last unit of time spent in each alternative use.