A person is more likely to increase labor supply in response to an increase in the real wage,the ________ is the income effect and the ________ is the substitution effect.

Question

Quizplus · Accepted Answer

The substitution effect, which makes leisure more expensive relative to work, tends to increase labor supply as real wages rise. The income effect, which increases overall income, might reduce labor supply by allowing a person to afford more leisure. Therefore, a larger substitution effect relative to a smaller income effect would more likely increase labor supply.

A Person Is More Likely to Increase Labor Supply in Response