If the hourly wage increases from $8 to $10 an hour and in response Jim increases the number of hours that he works from 44 to 46,the substitution effect is dominant.

Question

Quizplus · Accepted Answer

The substitution effect occurs when an increase in the wage rate leads workers to substitute leisure time for work time. In this case, since the hourly wage has increased, Jim has an incentive to work more hours in order to earn more income. This is consistent with the substitution effect, which suggests that workers will respond to a change in the wage rate by adjusting the amount of labor they supply.

If the Hourly Wage Increases from $8 to $10 an Hour