Assume leisure is a normal good. The substitution effect of a wage decrease implies a ________ demand for leisure and a ________ labor supply.
A) lower; higher
B) higher; lower
C) higher; higher
D) lower; lower

Question

Quizplus · Accepted Answer

The substitution effect of a wage decrease implies that leisure becomes relatively cheaper compared to work, leading to a higher demand for leisure and a lower labor supply, as individuals are incentivized to substitute work for leisure due to the lower opportunity cost of enjoying leisure.

Assume Leisure Is a Normal Good