A permanent increase in the real wage rate has a ________ income effect on labor supply than a temporary increase in the real wage,so labor supply is ________ with a permanent wage increase than for a temporary wage increase.
A)larger; more
B)larger; less
C)smaller; more
D)smaller; less

Question

Quizplus · Accepted Answer

A permanent increase in the real wage rate has a larger income effect on labor supply than a temporary increase, leading individuals to value leisure more compared to work. As a result, labor supply is less with a permanent wage increase than for a temporary wage increase, because people can afford to work less while maintaining their desired standard of living.

A Permanent Increase in the Real Wage Rate Has a ________