If the income effect is less than the substitution effect and the wage rate decreases, individuals
A) will supply more work.
B) will supply less work.
C) will consume less leisure.
D) cannot be determined from the given information

Question

Quizplus · Accepted Answer

When the wage rate decreases, the substitution effect would typically lead to less work supplied because other activities (leisure) become relatively cheaper. However, the income effect, which might lead individuals to work more to maintain their income, is weaker. Therefore, individuals will supply less work overall.

If the Income Effect Is Less Than the Substitution Effect