Eric is a professor who is paid an annual salary to teach at a local college.Suppose Eric receives a promotion and an increase in his annual salary.Eric's labor supply curve will be:
A)upward sloping if the substitution effect is greater than the income effect.
B)upward sloping if the substitution effect is smaller than the income effect.
C)downward sloping if the substitution effect is greater than the income effect.
D)vertical if the substitution effect is greater than the income effect.

Question

Quizplus · Accepted Answer

If the substitution effect (the incentive to work more due to higher wages) is greater than the income effect (the tendency to work less because he can maintain the same standard of living with less work), Eric's labor supply curve will be upward sloping.

Eric Is a Professor Who Is Paid an Annual Salary