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

Question

Quizplus · Accepted Answer

The substitution effect of an increase in wages indicates that the opportunity cost of leisure has increased. This, in turn, leads workers to desire to consume less leisure and work more hours to earn higher wages. Therefore, the correct answer is B - a desire to consume less leisure.

What Is the Substitution Effect from an Increase in Wages