The trade-off between work and leisure underlying the supply of labor involves the substitution effect and the _____ effect.

Question

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The income effect is the change in the quantity of labor supplied due to a change in income. As income increases, individuals may choose to work fewer hours if the additional income allows them to maintain their desired standard of living with less work. Conversely, if income decreases, individuals may need to work more hours to maintain their desired standard of living.

The Trade-Off Between Work and Leisure Underlying the Supply of Labor