Harry experiences an increase in his wages.The hours of labor that he supplies to the market would decrease if
A) the income effect is larger than the substitution effect.
B) the substitution effect is larger than the income effect.
C) neither the income effect nor the substitution effect apply to Harry's labor-leisure tradeoff.
D) Harry views both labor and leisure as inferior goods.

Question

Quizplus · Accepted Answer

If the income effect is larger than the substitution effect, Harry will choose to work fewer hours because the additional income allows him to enjoy more leisure time.

Harry Experiences an Increase in His Wages