Assume Edward considers eating out to be a normal good.The income effect of a wage increase for Edward implies that Edward's demand for eating out will be ________ and Edward's labor supply will be ________.

Question

Quizplus · Accepted Answer

A wage increase will lead to an increase in Edward's income, which will lead to an increase in his demand for normal goods such as eating out. Therefore, the demand for eating out will increase. However, as his wage increases, the opportunity cost of leisure decreases, making it more expensive to take leisure. Thus, the increase in his wage will lead to a lower labor supply, indicated by the decrease in his leisure time. Therefore, option B is the correct answer.

Assume Edward Considers Eating Out to Be a Normal Good