An increase in the wage rate will lead to a reduction in the quantity of labor supplied if _____

Question

Quizplus · Accepted Answer

When the wage rate increases, the income of the worker also increases, which would normally lead to an increase in the quantity of labor supplied due to the income effect. However, the substitution effect refers to the tendency of workers to substitute leisure for work as the wage rate increases. If the income effect is stronger than the substitution effect, the worker may choose to work more, but if the substitution effect is stronger, the worker may choose to work less. This means that if the income effect outweighs the substitution effect, the worker will supply more labor at a higher wage rate, but if the opposite is true, the worker will supply less labor. Therefore, the best answer is B.

An Increase in the Wage Rate Will Lead to a Reduction