refer to the following diagram:

-If this person's wage rate falls as illustrated in the diagram,then:

Question

refer to the following diagram:
 
-If this person's wage rate falls as illustrated in the diagram,then:

Quizplus · Accepted Answer

If the wage rate falls, the income effect will cause a decrease in desired work hours as the person can afford to work less and still maintain the same level of non-wage income. However, the substitution effect will cause an increase in desired work hours as leisure time has become more expensive compared to work time. The income effect and substitution effect have opposite effects on desired work hours, but in this case, the income effect is stronger, leading to a decrease in desired work hours overall. Therefore, the correct answer is B.

Refer to the Following Diagram