If Jeff's wage rate rises,he decides to work more hours.From this,we can infer that
A)for Jeff, the substitution effect is greater than the income effect.
B)for Jeff, the substitution effect is equal to the income effect.
C)for Jeff, the substitution effect is less than the income effect.
D)Jeff is confused.

Question

Quizplus · Accepted Answer

The substitution effect describes how individuals respond to changes in relative prices, while the income effect describes the change in demand due to a change in income. When Jeff's wage rate rises, his relative wage (the price of his leisure in terms of foregone earnings) increases, prompting him to work more hours to take advantage of the higher wage rate. This shows that the substitution effect dominates the income effect, since he is willing to substitute more of his leisure for work at the higher wage rate. Therefore, choice A is the best answer.

If Jeff's Wage Rate Rises,he Decides to Work More Hours