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10. Individual labor supply: income and substitution effects Aa Aa Xavier has th

ID: 1207748 • Letter: 1

Question

10. Individual labor supply: income and substitution effects Aa Aa Xavier has the following labor supply curve: WAGE RATE [Dollars per hourl Labor Supply W3 W2 W1 HOURS WORKED The income effect of a higher wage outweighs the substitution effect when wages are The income effect is the phenomenon that workers choose to work becausethe opportunity cost of leisure has risen . hours when they are given a raise, the opportunity cost of leisure has risen they can afford to buy less leisure the opportunity cost of leisure has fallen they can afford to buy more leisure QNA 3.16

Explanation / Answer

Between W1 and W3

More, The Opportunity cost of leisure has fallen

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