The substitution effect of wages states that a decreased wage rate
A)Encourages people to consume less leisure.
B)Will shift the labor supply curve rightward.
C)Will lead to a movement up along the existing supply curve.
D)Encourages people to work less hours.

Question

Quizplus · Accepted Answer

The substitution effect of wages posits that when wages decrease, the opportunity cost of leisure increases relative to working, making leisure relatively more expensive. This encourages individuals to work less because they are being paid less for each hour of work, making leisure (or non-work time) more appealing despite its increased relative cost.

The Substitution Effect of Wages States That a Decreased Wage