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 income effect is dominant.

Question

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The income effect would suggest that Jim works fewer hours because he earns more per hour and can afford the same standard of living with less work. However, Jim working more indicates the substitution effect (where higher wages make work more attractive compared to leisure) is dominant.

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