The trade-off between work and leisure underlying the supply of labour involves the income effect and the _____ effect.

Question

Quizplus · Accepted Answer

The income effect is the increase in leisure time that occurs when the wage rate increases, which allows individuals to afford more leisure activities. The substitution effect is the decrease in leisure time that occurs when the wage rate increases because individuals substitute leisure time for work time in order to earn more income. Therefore, the correct answer is A.

The Trade-Off Between Work and Leisure Underlying the Supply of Labour