For the past year, Ted has had a part- time job at which he is willing to work 10 hours each week. During Ted's annual review, his boss grants him an 8 per cent increase in his wage. As a result of the wage increase, Ted is now willing to work 15 hours each week. Ted's opportunity cost of _______
Has risen and for Ted the substitution effect of the wage hike is _______ than the income effect.
A) work; less
B) leisure; less
C) leisure; greater
D) work; greater

Question

Quizplus · Accepted Answer

Ted's opportunity cost of leisure has risen because he is now willing to work more hours due to the wage increase, indicating that the value of his time (or the cost of foregoing work for leisure) has increased. The substitution effect of the wage hike is greater than the income effect because the increase in wage makes working more attractive compared to leisure, leading Ted to substitute leisure for more work hours.

For the Past Year, Ted Has Had a Part- Time