The income effect means that at a high enough wage rate the labour supply curve has a
A) positive slope because an increase in the wage rate increases income.
B) negative slope because an increase in income increases the demand for leisure.
C) negative slope because an increase in the wage rate increases hours worked to earn more income.
D) positive slope because an increase in income increases the demand for leisure.

Question

Quizplus · Accepted Answer

The income effect suggests that as wages increase, individuals may opt to work less because they can maintain the same standard of living with fewer hours worked, effectively increasing their demand for leisure. This can result in a negative slope on the labor supply curve, as higher wages lead to a decrease in the quantity of labor supplied.

The Income Effect Means That at a High Enough Wage