. In Exhibit 124, when the wage rate increases from $9 to $12, thesubstitution effect outweighs the income effect.

Question

.  In Exhibit 12­4, when the wage rate increases from $9 to $12, thesubstitution effect outweighs the income effect.

Quizplus · Accepted Answer

The substitution effect of the increase in wage rate leads to a decrease in leisure time and an increase in work effort, which results in a greater income. The income effect also encourages an increase in leisure time, but the net effect of the wage rate increase is a greater desire to work. Thus, the substitution effect outweighs the income effect.

in Exhibit 12­4, When the Wage Rate Increases

in Exhibit 124, When the Wage Rate Increases