The tendency of workers to supply more labor in response to a larger reward for working is called the ________ of a higher real wage on the quantity of labor supplied.
A)homogeneous labor supply effect
B)negative correlation effect
C)income effect
D)substitution effect

Question

Quizplus · Accepted Answer

The correct term for the described tendency is the substitution effect. The substitution effect occurs when higher wages make leisure time more expensive relative to working time, leading people to work more hours to offset the higher cost of leisure. The income effect, on the other hand, refers to the tendency of people to work less as their income goes up, as they can afford to consume more leisure time. The other choices are not relevant to the concept described in the question.

The Tendency of Workers to Supply More Labor in Response