The effect of a wage decrease on hours worked can vary among individuals due to differences in income and substitution effects. Some workers might work more hours to maintain their income (substitution effect), while others might work fewer hours because the lower wage decreases the opportunity cost of leisure (income effect). The overall impact on average hours worked is uncertain without more information.

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When the Wage Falls

Question 97

Multiple Choice

When the wage falls

A) all workers will work more hours.
B) all workers will work fewer hours.
C) some workers will work more hours and some workers will work fewer hours, but on average, hours worked will fall.
D) some workers will work more hours and some workers will work fewer hours, but we don't know whether average hours will increase or decrease.

Correct Answer: