Questions are based on the following diagram:

-In the diagram,the substitution effect associated with a wage increase is shown by the distance:

Question

Questions   are based on the following diagram:

-In the diagram,the substitution effect associated with a wage increase is shown by the distance:

Quizplus · Accepted Answer

The substitution effect is the change in the quantity of a good demanded due to a change in the relative price of that good. In this case, the wage increase makes leisure more expensive relative to work, so the substitution effect is to increase the quantity of work demanded. This is shown by the distance CE, which is the horizontal distance between the original equilibrium point and the new equilibrium point after the wage increase.

Questions Are Based on the Following Diagram