The income effect of a change in wages says that as your wage rate rises, you will work more hours, since the opportunity cost of leisure also rises.

Question

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The income effect of a wage increase suggests that as your wage rate rises, you might work fewer hours because you can maintain the same income level with less work, increasing your leisure time. This contrasts with the substitution effect, which suggests you might work more because the opportunity cost of leisure has increased.

The Income Effect of a Change in Wages Says That