As a person's wage rate increases, the substitution effect motivates an increase in work and the income effect motivates a decrease in work.

Question

Quizplus · Accepted Answer

The substitution effect suggests that as wages increase, the opportunity cost of leisure rises, encouraging more work. The income effect implies that higher wages increase overall income, potentially leading to more leisure and less work.

As a Person's Wage Rate Increases, the Substitution Effect Motivates