The representative consumer's current labour supply curve slopes upward under the assumption that
A) there is an indirect relationship between the current real wage and current labour supply.
B) the substitution effect of an increase in the real wage outweighs the income effect.
C) the substitution effect of an increase in the real wage is less than the income effect.
D) the substitution effect of an increase in the current labour supply outweighs the income effect.
E) the substitution effect of an increase in the current labour supply is less than the income effect.

Question

Quizplus · Accepted Answer

The upward sloping labour supply curve of the representative consumer indicates that the substitution effect of an increase in the real wage (which makes leisure relatively more expensive) outweighs the income effect (which makes leisure relatively less expensive). Therefore, the consumer will supply more labour at higher wages.

The Representative Consumer's Current Labour Supply Curve Slopes Upward Under