Katie wins $1 million in her state's lottery.If Katie drastically reduces the number of hours she works after she wins the money,we can infer that the income effect is larger than the substitution effect for her.

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The income effect occurs when an increase in income leads to a change in consumption patterns because there is now more money available to spend. In this case, if Katie reduces her hours and her income, it suggests that she is choosing to consume less because she now has more income available. This implies that the income effect is larger than the substitution effect, which occurs when an increase in the price of one good leads to a substitution towards a cheaper alternative.

Katie Wins $1 Million in Her State's Lottery