If Social Security benefits were changed so those retiring at a later age got much more got substantially then the substitution effect would probably ________ and the income effect would probably ________ on the retirement age.

Question

Quizplus · Accepted Answer

The substitution effect is the idea that if the reward (in this case, Social Security benefits) for working longer increases, people will be more likely to work longer. Therefore, if Social Security benefits were changed so that those retiring at a later age received much more, the substitution effect would increase, meaning more people would be likely to work longer. However, the income effect is the idea that people will want to work less the richer they become. Therefore, if Social Security benefits were increased substantially for those who retire later, the income effect would lead people to want to work less and retire earlier. This would contradict the substitution effect and would likely lead to an overall decrease in the retirement age. Thus, the correct answer is B.

If Social Security Benefits Were Changed So Those Retiring at a Later