The trade-off between work and leisure underlying the supply of labor involves the income effect and the _____ effect.
A)substitution
B)elasticity
C)production
D)wage

Question

Quizplus · Accepted Answer

The income effect explains how an increase in wage rates increases the purchasing power of individuals, leading to an increase in their demand for leisure. On the other hand, the substitution effect describes how an increase in wage rates increases the opportunity cost of leisure, encouraging individuals to work more and enjoy less leisure time. Therefore, the correct answer is A) substitution.

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