The "income effect" for labor supply states that people work more as wages rise because the opportunity cost of leisure falls.

Question

Quizplus · Accepted Answer

The "income effect" actually suggests that as wages rise, individuals may choose to work less because they can maintain the same standard of living with less work, thus valuing leisure more. The explanation provided describes the "substitution effect," where higher wages make leisure more costly in terms of foregone earnings, potentially leading to more work hours.

The "Income Effect" for Labor Supply States That People Work