Assume leisure is an inferior good instead of a normal good. The income effect of a wage decrease will lead to a ________ demand for leisure and a ________ labor supply.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower

Question

Quizplus · Accepted Answer

When leisure is an inferior good, a decrease in wage (which effectively reduces income) leads to an increase in the demand for leisure because individuals will substitute towards the cheaper 'good' (leisure). Consequently, as individuals demand more leisure, they supply less labor.

Assume Leisure Is an Inferior Good Instead of a Normal