The neo-classical theory of labour supply assumes that

Question

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The neo-classical theory of labour supply assumes that the individual is faced with a simple choice between leisure and goods, which implies that the individual has a fixed amount of time and must allocate it between work and leisure. Option B is incorrect because the theory assumes that there are other sources of income, such as inheritance or interest on savings. Option C is incorrect because the theory assumes that hours of work are subject to a time constraint, as the individual only has a limited amount of time available. Option D is incorrect because the substitution effect does apply in the theory, meaning that individuals will substitute leisure for work as the wage rate increases, all else being equal.

The Neo-Classical Theory of Labour Supply Assumes That