Suppose that Professor Jones receives a promotion and an increase in her annual salary.Her labor supply curve will be _____ if the substitution effect is _____ than the income effect.

Question

Quizplus · Accepted Answer

If the substitution effect is greater than the income effect, then the individual will respond more to changes in the relative price of leisure and work compared to changes in their income. This will result in a stronger incentive to work more hours, causing the labor supply curve to shift upwards. Therefore, the labor supply curve will be upward-sloping.

Suppose That Professor Jones Receives a Promotion and an Increase