In response to an increase in the wage rate,the income effect will usually cause a person to
A) supply fewer hours of labor.
B) supply more hours of labor.
C) supply the same hours of labor.
D) have a horizontal labor supply curve.

Question

Quizplus · Accepted Answer

The income effect refers to the change in the amount of labor supplied due to the change in the wage rate. An increase in the wage rate increases the opportunity cost of leisure time, making work more attractive. However, the increase in the wage rate also increases a worker's income, which means they can afford to work less and still maintain their current level of consumption. This leads to a decrease in the quantity of labor supplied, as the worker can now attain the same level of consumption with fewer hours of work. Therefore, the answer is A) supply fewer hours of labor.

In Response to an Increase in the Wage Rate,the Income