Suppose that Mfundo gets an increase in his wage and he decides to work fewer hours. For him, the substitution effect of the wage change is

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The substitution effect of the wage change is the change in labor leisure choice due solely to the change in the relative wage rate. In this case, the increase in wage leads to an increase in the opportunity cost of leisure, making work more attractive relative to leisure. Therefore, the substitution effect leads to an increase in labor supply. However, since Mfundo chose to work fewer hours, the income effect must have dominated the substitution effect. The income effect is the change in labor-leisure choice due solely to the change in income. In Mfundo's case, the increase in wage leads to an increase in income, which could make leisure more attractive relative to work. Therefore, the income effect leads to a decrease in labor supply. The magnitude of the income effect is greater than that of the substitution effect, leading to a decrease in labor supply in total. Thus, the substitution effect is less than the income effect.

Suppose That Mfundo Gets an Increase in His Wage and He