If the income effect outweighs the price effect of a wage increase,the labor-supply curve will:

Question

Quizplus · Accepted Answer

The income effect refers to the change in the quantity of labor supplied due to a change in real income, while the price effect refers to the change in quantity of labor supplied due to a change in the wage rate. If the income effect is greater than the price effect (i.e., individuals choose to work more because the increase in real income makes leisure time less valuable to them than working), then the labor-supply curve will slope downward.

If the Income Effect Outweighs the Price Effect of a Wage