A decrease in the real wage will cause an individual to increase his or her supply of labour if
A)the substitution effect is greater than the income effect.
B)the income effect is greater than the substitution effect.
C)the substitution effect is positive and the income effect is negative.
D)the substitution effect is equal to the income effect.

Question

Quizplus · Accepted Answer

A decrease in real wage means the individual earns less for the same amount of work. If the income effect is greater than the substitution effect, the individual will work more to maintain their income level, thus increasing their labor supply.

A Decrease in the Real Wage Will Cause an Individual