Higher wage rates allow a person to reduce the hours worked without losing income.This is known as the

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The given scenario represents the income effect, which states that an increase in income (in this case, due to higher wage rates) leads to a decrease in the hours worked without a reduction in income. This happens because the person now has more money to spend and can afford to work fewer hours. The substitution effect, on the other hand, deals with the change in demand for goods and services due to changes in their relative prices. The law of diminishing marginal utility explains the decrease in satisfaction or usefulness that a person derives from each additional unit of a commodity consumed.

Higher Wage Rates Allow a Person to Reduce the Hours