The substitution effect from an increase in wages is evident in
A)a decrease in labor demand.
B)a desire to consume less leisure.
C)a desire to consume more leisure.
D)a backward-bending labor supply curve.

Question

Quizplus · Accepted Answer

The substitution effect from an increase in wages creates an incentive for workers to work more hours and have less leisure time, as they can earn more income per hour. Therefore, the desire to consume less leisure is the best choice that represents the substitution effect. A decrease in labor demand would be the result of a negative output effect, not the substitution effect. The desire to consume more leisure would represent the income effect, not the substitution effect. A backward-bending labor supply curve is the result of conflicting substitution and income effects at high levels of wages.

The Substitution Effect from an Increase in Wages Is Evident