Flor's hourly wage increases from $8 to $10.Which of the following describes a consequence of the increase in Flor's wage?
A) The opportunity cost of Flor's leisure time has decreased.
B) If Flor's labor supply curve is upward-sloping, she will choose to work fewer hours.
C) Flor will not want a higher wage to maintain her more affluent status.
D) Flor may choose to work fewer hours due to the increase in her wage.
E) If Flor's labor supply curve is downward-sloping, she will choose to work more hours.

Question

Quizplus · Accepted Answer

When Flor's hourly wage increases, she may choose to work fewer hours because she can earn the same amount of income in fewer hours. This is called the income effect. Therefore, option D is the correct answer. Option A is not a consequence of an increase in wage rate. Option B and E depend on the shape of Flor's labor supply curve, which is not given. Option C is not a rational behavior because the increase in wage rate increases the purchasing power of Flor, resulting in her preference for more goods and services rather than the maintenance of her status.

Flor's Hourly Wage Increases from $8 to $10