The less permanent an employee perceives an increase in her real wages to be
A)the smaller the income effect is and the more likely it is that the quantity of labour supplied will be increased.
B)the smaller the income effect is and the more likely it is that the quantity of labour supplied will be reduced.
C)the smaller the substitution effect is and the more likely it is that the quantity of labour supplied will be increased.
D)the smaller the substitution effect is and the more likely it is that the quantity of labour supplied will be reduced.

Question

Quizplus · Accepted Answer

When an employee perceives a wage increase as less permanent, the income effect is smaller, leading them to work more to maximize earnings while the increase lasts, thus increasing the quantity of labor supplied.

The Less Permanent an Employee Perceives an Increase in Her