In which of the following scenarios would the income effect be most likely to be greater than the substitution effect?
A)An increase in the minimum wage
B)A tax on fast foods
C)An increase in salaries for surgeons
D)An increase in wages for day laborers

Question

Quizplus · Accepted Answer

The income effect is more likely to be greater than the substitution effect in situations where the good in question is a normal good (i.e. as income increases, demand for the good increases). Therefore, an increase in salaries for surgeons (who generally have higher incomes) is most likely to lead to a significant increase in demand for normal goods and a greater income effect.

In Which of the Following Scenarios Would the Income Effect