Consider the indifference curve-budget line model of labor supply,and assume consumption and leisure are both normal goods.A higher wage rate would result in

Question

Quizplus · Accepted Answer

A higher wage rate increases the opportunity cost of leisure, leading to a substitution effect where the worker supplies more labor (less leisure). However, if the income effect (desire for more leisure due to higher income) is stronger, the worker might supply less labor. Thus, labor increases only if the substitution effect is stronger.

Consider the Indifference Curve-Budget Line Model of Labor Supply,and Assume