For a worker who is deciding how many hours of labour to supply, all of the following are true except that:

Question

Quizplus · Accepted Answer

The income effect of a wage change does not necessarily equal the substitution effect. When wages change, the substitution effect influences the worker to substitute leisure with work (if wages increase) or work with leisure (if wages decrease), because the opportunity cost of leisure changes. The income effect, however, affects the worker's choice based on the change in purchasing power; an increase in wages might lead to more leisure if the worker feels wealthier and decides to "purchase" more leisure time. These two effects often work in opposite directions and do not have to be equal.

For a Worker Who Is Deciding How Many Hours of Labour