If the income effect is greater than the substitution effect, the labor supply curve
A) is horizontal.
B) is vertical.
C) has a negative slope.
D) has a positive slope.

Question

Quizplus · Accepted Answer

When the income effect is greater than the substitution effect, it means that as wages increase, individuals prefer to work less and enjoy more leisure time, leading to a decrease in labor supplied at higher wage rates. This results in a labor supply curve with a negative slope.

If the Income Effect Is Greater Than the Substitution Effect