Safiya works at a factory for $15 an hour and typically works 40 hours a week. Safiya receives a pay raise and now earns $20 an hour. She decides to work 45 hours a week at her new wage. Which of the following statements is true about her decision to increase her hours worked upon receiving a wage increase?

Question

Quizplus · Accepted Answer

Safiya's decision to work more hours at a higher wage rate suggests that the price effect (the incentive to work more hours because the wage rate has increased) outweighed the income effect (the tendency to work fewer hours because one can maintain the same income with fewer hours). This behavior implies that her labor supply curve is upward sloping, as she is willing to supply more labor when the wage rate increases. This outcome is typically observed in many labor markets, where workers respond to higher wages by increasing the amount of labor they supply.

Safiya Works at a Factory for $15 an Hour and Typically