If the wage rate decreases, the substitution effect is for a person to work more and the income effect is for a person to take more leisure.

Question

Quizplus · Accepted Answer

This statement is incorrect. According to the substitution and income effects of a decrease in wage rate, the substitution effect would lead to an increase in leisure and the income effect would lead to a decrease in leisure. Therefore, a person may work less due to the increased opportunity cost of leisure as their wage rate has decreased.

If the Wage Rate Decreases, the Substitution Effect Is for a Person