1. Consider the decision of a household to have additional children. As a result of the substitution effect(s) of a wage increase, economic theory predicts that:

A. the household will substitute purchased inputs (such as day care providers) for their own time while raising their children.

B. the desired number of children selected by the household will increase.

C. Both of the above are correct.

D. None of the above is correct.

2. In the household production model, the income effect associated with a wage decrease will:

A. increase the use of time in household production and reduce the amount of time spent working in the paid labor market.

B. decrease the use of time in household production and increase the amount of time spent working in the paid labor market.

C. decrease the amount of time spent in both household production and the paid labor market.

D. increase the amount of time spent in both household production and the paid labor market.