The relationship between the quantity of labor supplied and the wage is governed by an income effect and a substitution effect.

Question

Quizplus · Accepted Answer

This statement is true. The income effect refers to how changes in wages affect the overall income of a worker, while the substitution effect refers to how a change in wages can affect the relative cost of leisure versus work, leading to a change in the amount of labor supplied. Both effects work together to determine how workers respond to changes in wages.

The Relationship Between the Quantity of Labor Supplied and the Wage