Meredith receives a wage hike. If Meredith decides to work an extra hour,
A) her substitution effect is greater than her income effect.
B) her opportunity cost of leisure is high.
C) she operates on the backward- bending portion of her labour supply curve.
D) her reservation wage rate exceeds her value of marginal product.

Question

Quizplus · Accepted Answer

When Meredith decides to work an extra hour after a wage hike, it indicates that the substitution effect (the incentive to work more due to higher wages) is greater than the income effect (the tendency to work less because she can maintain the same income with fewer hours).

Meredith Receives a Wage Hike