Susie wins $2 million in her state's lottery. If Susie keeps working after she wins the money, we can infer that the income effect is larger than the substitution effect for her.

Question

Quizplus · Accepted Answer

The income effect describes how a person's consumption changes with an increase in purchasing power (like winning the lottery), which might lead them to work less. The substitution effect describes how a person might work more when the wage rate increases relative to leisure because work becomes more valuable compared to leisure time. If Susie keeps working after winning the lottery, it suggests that the substitution effect (the value she places on working versus leisure) might be stronger for her, or other non-economic factors are at play, rather than the income effect leading her to work less.

Susie Wins $2 Million in Her State's Lottery