When Ronald's hourly wage increased from $12 to $15, this allowed him to reduce the number of hours worked so that he can spend more time studying. What is TRUE about Ronald's individual labor supply at this point?

Question

Quizplus · Accepted Answer

The income effect is stronger than the substitution effect in this scenario because the increase in wage (income effect) allows Ronald to afford to work fewer hours and still maintain his income level or lifestyle, leading him to choose more leisure (studying) over work. The substitution effect, which would normally lead an individual to work more hours because the wage rate is higher, is outweighed by his preference to study more.

When Ronald's Hourly Wage Increased from $12 to $15, This