In terms of labor supply, the income effect of a higher wage causes a(n):
A) decrease in leisure time.
B) decrease in the quantity of labor supplied.
C) substitution of work for leisure.
D) reduction of leisure time to zero.

Question

Quizplus · Accepted Answer

The income effect of a higher wage means that as individuals earn more per hour, they can afford to work fewer hours while maintaining the same level of income, leading to a decrease in the quantity of labor supplied as they opt for more leisure time.

In Terms of Labor Supply, the Income Effect of a Higher