When wages for a worker increases the number of lifetime hours worked will increase:
A)for everyone.
B)when the substitution effect is larger than the income effect.
C)when the income effect is larger than the substitution effect.
D)only for those with a college education.
E)will have no effect because individuals cannot control the number of hours worked.

Question

Quizplus · Accepted Answer

According to the substitution effect, as the wages of a worker increase, they will be incentivized to work more hours in order to increase their income. However, the income effect suggests that as wages increase, workers may choose to work fewer hours since they are now earning enough to achieve their desired level of consumption. Therefore, if the substitution effect is greater than the income effect, the worker will choose to work more hours and the number of lifetime hours worked will increase.

When Wages for a Worker Increases the Number of Lifetime