The representative consumer's current labour supply curve slopes upward under the assumption that
A) there is an indirect relationship between the current real wage and current labour supply.
B) the substitution effect of an increase in the real wage outweighs the income effect.
C) the substitution effect of an increase in the real wage is less than the income effect.
D) the substitution effect of an increase in the current labour supply outweighs the income effect.
E) the substitution effect of an increase in the current labour supply is less than the income effect.

Question

Quizplus · Accepted Answer

The upward sloping labour supply curve indicates that the substitution effect of an increase in the real wage (i.e. the incentive to work more due to the higher wage) outweighs the income effect (i.e. the incentive to work less due to the higher income). This assumption implies that the consumer is willing to sacrifice some leisure time to earn more income at a higher wage rate.

The Representative Consumer's Current Labour Supply Curve Slopes Upward Under