If the income effect is smaller than the substitution effect, higher net wages will ?
Correct answer: C. increase the supply of labour
- A. reduce the supply of labour.
- B. increase the demand for labour
- C. increase the supply of labour
- D. have no effect on the supply of labour
Explanation
A higher wage makes leisure more costly in terms of forgone earnings, creating a substitution effect toward work. If this effect exceeds the income effect toward leisure, labour supply increases.
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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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