If Alan Shaw reduces his work hours when his salary increases, then
A)the income effect of his salary increase dominates the substitution effect.
B)the substitution effect of his salary increase dominates the income effect.
C)the income effect of his salary increase is completely offset by the substitution effect.
D)leisure is an inferior good to Alan.

Question

Quizplus · Accepted Answer

When Alan reduces his work hours as his salary increases, it indicates that the income effect (desire for more leisure due to higher income) is stronger than the substitution effect (incentive to work more due to higher wage rate).

If Alan Shaw Reduces His Work Hours When His Salary