The labor supply curve will be positively sloped if the substitution effect of wages is
A)Equal to the income effect of wages.
B)Stronger than the income effect of wages.
C)Weaker than the income effect of wages.
D)Negative.

Question

Quizplus · Accepted Answer

When the substitution effect of wages is stronger than the income effect, as wages increase, individuals are incentivized to work more hours to increase their income. This leads to a positively sloped labor supply curve. If the income effect is stronger, individuals may choose to work fewer hours as their increased wages provide more financial security or comfort, leading to a negatively sloped labor supply curve.

The Labor Supply Curve Will Be Positively Sloped If the Substitution