For the past year, Teddy has had a part-time job at which he is willing to work 10 hours each week. During Teddy's annual review, his boss grants him an 8 percent increase in his wage. As a result of the wage increase, Teddy is now willing to work 15 hours each week. Teddy's opportunity cost of ________ has risen and because for Teddy the substitution effect of the wage hike is ________ than the income effect.

Question

Quizplus · Accepted Answer

Teddy's opportunity cost of leisure has risen because he is now willing to work more hours. The substitution effect, which makes work more attractive relative to leisure due to higher wages, is greater than the income effect, which might lead him to work less because he can maintain the same income with fewer hours.

For the Past Year, Teddy Has Had a Part-Time Job