Question 1 (25 points) Microeconomic theory predicts that as the wage rises If :1 individual labor supply always declines. ("\"33 individual labor supply may rise or decline, because income and substitution effects go in opposite direction. ("3' individual labor supply rises, because income and substitution effects go in the same x direction. individual labor supply first rises and then declines. Question 2 (25 points) Camila has a reservation wage of $125 per hour. This implies that .:j:"_"::. Camila will not work when offered an hourly wage higher than $125. if :3 Camila will not work when offered an hourly wage lower than $125. Ii: Camila will work full time whenever she is offered an hourly wage higher than $125. { j. Camila will work only part-time whenever she is offered an hourly wage lower than $125. Question 3 (25 points) Assume that the indifference curve across bundles of consumption and leisure are strictly convex. Consider an interior point on the budget line (one for which leisure is between 0 and total time T). If the marginal utility of leisure divided by the wage is strictly greater than the marginal utility of consumption The point correspond to the optimal choice. l: At the point, the individual is working more than the optimal amount. At the point, the individual is working less than the optimal amount. At the point, the individual is not working. Question 4 (25 points) Basic microeconomic theory predicts that higher unemployment benefits reduce labor supply. l\" A} True {a} False