If leisure is a normal good, an increase in the wage ?
Correct answer: B. will increase the amount of labor supplied if the substitution effect outweighs the income effect
- A. will always increase the quantity of labor supplied
- B. will increase the amount of labor supplied if the substitution effect outweighs the income effect
- C. will increase the amount of labor supplied if the income effect outweighs the substitution effect
- D. will always decrease the amount of labor supplied
Explanation
A higher wage makes work more attractive relative to leisure, creating a substitution effect that raises labour supplied, but the higher income can increase desired leisure. Labour supply rises when the substitution effect is stronger than the income effect.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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