Tyler's wage rises and he chooses to increase the number of hours he supplies to the labor market. What does this imply about the relative sizes of the substitution effect and the income effect? Explain
What will be an ideal response?
This must mean that the substitution effect outweighs the income effect. The substitution effect of a wage increase implies that leisure is more expensive and the individual will work more. The income effect suggests that since the worker is better off (and leisure is a normal good), the worker will work less. Since Tyler chooses to work more, the substitution effect must be larger.
You might also like to view...
If the money supply is $500 and nominal income is $3,000, the velocity of money is
A) 1/60. B) 1/6. C) 6. D) 60.
The introduction of satellite television systems would cause the demand curve for cable television to be
A) more elastic. B) less elastic. C) perfectly inelastic. D) unchanged.
An expected increase in the future price of automobiles will lead to
A) an outward shift in demand for automobiles today. B) a reduction in the demand for gasoline today. C) a movement down the demand schedule for automobiles. D) no predictable impact on today's demand for automobiles.
The concept of "an invisible hand" led Adam Smith to believe that
a. if each person looks out for himself or herself, then chaos will inevitably ensue. b. pursuit of self-interest promotes economic well-being for society as a whole. c. governmental rule actually results in greater good than is apparent at the time. d. traditional religion is an appropriate guide for human behavior. e. All of the above are correct.