The combined effect (both income and substitution) of a wage increase is that
A) if the substitution effect outweighs the income effect, labor supply curve is backward bending, but if the income effect outweighs the substitution effect, labor supply slopes upward.
B) the income effect always dominates, leading to less work at a higher wage.
C) if the substitution effect outweighs the income effect, labor supply curve slopes upward, but if the income effect outweighs the substitution effect, labor supply is backward bending.
D) the substitution effect always dominates, leading to more work at a higher wage.
Correct Answer:
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