The substitution effect of a decrease in the wage rate would lead most people to supply
A)less labor and demand less leisure.
B)less labor and demand more leisure.
C)more labor and demand less leisure.
D)more labor and demand more leisure.

Question

Quizplus · Accepted Answer

The substitution effect of a decrease in the wage rate implies that the opportunity cost of leisure has increased, which makes working more attractive than leisure. As a result, individuals will substitute leisure time for work time and supply less labor. Therefore, they will demand more leisure time, which is consistent with option B.

The Substitution Effect of a Decrease in the Wage Rate