If Tamara is given a $3-per-hour pay increase, and in response, she decides to work more hours, then

Question

Quizplus · Accepted Answer

Tamara's decision to work more hours in response to a pay increase indicates that the substitution effect (the change in labor supply due to a change in the wage rate, making leisure relatively more expensive and work relatively more attractive) is dominating the income effect (the change in labor supply due to being able to afford more leisure with higher income). This behavior is represented on the upward-sloping portion of her labor supply curve, where an increase in wages leads to an increase in the quantity of labor supplied.

If Tamara Is Given a $3-Per-Hour Pay Increase, and in Response