When Noah's wage rises and he decides to work more hours,we know that the ________ effect has dominated the ________ effect.
A) substitution; income
B) labor; leisure
C) income; substitution
D) leisure; labor
E) substitution; leisure

Question

Quizplus · Accepted Answer

When Noah's wage rises, the substitution effect suggests that he will choose to work more hours because the reward for working has increased relative to leisure time. The income effect suggests that he may choose to work fewer hours because he can now afford to enjoy more leisure time. In this scenario, we can assume that the income effect is small enough that the substitution effect dominates, leading to Noah's decision to work more hours. Therefore, the best choice would be A, substitution dominating income.

When Noah's Wage Rises and He Decides to Work More