The trade-off between work and leisure underlying the supply of labor involves the income effect and the:

Question

Quizplus · Accepted Answer

The income effect refers to how changes in wages or income affect the choices individuals make in terms of work and leisure. This effect can either increase or decrease the amount of leisure individuals choose to enjoy depending on their preference. The substitution effect refers to how changes in wages or income affect the relative costs of working versus leisure, leading individuals to either work more or less depending on the change. Thus, the best choice is A, as the income effect is part of the trade-off between work and leisure, and the substitution effect also plays a role in determining the supply of labor. The elasticity effect and the production effect are not directly related to the trade-off between work and leisure. The wage effect is a term that could refer to either the income effect or the substitution effect, so it is not a distinct answer choice.

The Trade-Off Between Work and Leisure Underlying the Supply of Labor