When consumption and leisure are both normal goods, an increase in real dividend income minus taxation, the rational consumer
A) increases consumption and increases labour supply.
B) increases consumption and reduces labour supply.
C) reduces consumption and increases labour supply.
D) reduces consumption and reduces labour supply.
E) increases consumption and savings.

Question

Quizplus · Accepted Answer

An increase in real dividend income minus taxation increases the consumer's overall wealth, leading to higher consumption and reduced labor supply as leisure is also a normal good.

When Consumption and Leisure Are Both Normal Goods, an Increase