Your boss has told you that you will receive an increase in your salary next year.In response to this news,you would reduce your labour supply because
A)the income effect would be equal to the substitution effect.
B)the substitution effect would be stronger than the income effect.
C)there would be an income effect but no substitution effect.
D)there would be a substitution effect,but no income effect.

Question

Quizplus · Accepted Answer

An increase in salary can lead to an income effect where you feel wealthier and may choose to work less, as you can maintain the same standard of living with fewer hours.

Your Boss Has Told You That You Will Receive an Increase