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Figure: Joanna's Time Allocation Budget Line
-(Figure: Joanna's Time Allocation Budget Line) Joanna's Time Allocation Budget Line depicts what happens when she can choose how to spend 40 hours. If Joanna's wage rate increases and she ends up working more hours, for her:
A) the substitution effect dominates.
B) the income effect dominates.
C) the substitution and income effects cancel each other out.
D) the substitution effect becomes ineffective. Answer Key

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Figure: Joanna's Time Allocation Budget Line 
-(Figure: Joanna's Time Allocation Budget Line) Joanna's Time Allocation Budget Line depicts what happens when she can choose how to spend 40 hours. If Joanna's wage rate increases and she ends up working more hours, for her:
A) the substitution effect dominates. 
B) the income effect dominates. 
C) the substitution and income effects cancel each other out. 
D) the substitution effect becomes ineffective. Answer Key

Quizplus · Accepted Answer

When Joanna's wage rate increases and she chooses to work more hours, it indicates that the substitution effect, which encourages her to substitute leisure for work due to higher wages, dominates over the income effect, which would encourage her to work less as she can maintain the same income with fewer hours.

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