Empirical evidence seems to suggest that the wage elasticity of the supply of labor is small and positive. It must be true, therefore, that
A) the substitution effect of a change in the wage rate should be expected to exceed the associated income effect by a small amount.
B) the substitution effect of a change in the wage rate should be expected to fall short of the associated income effect by a small amount.
C) both the income and substitution effects of a change in the wage rate should be expected to be small and of opposite signs.
D) both the income and substitution effects of a change in the wage rate should be expected to be of the same signs.
E) none of the above.
Correct Answer:
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