In terms of labour supply,the substitution effect of a higher wage causes a(n):
A) increase in leisure time.
B) increase in the quantity of labour supplied.
C) substitution of leisure for work.
D) reduction of work time to zero.

Question

Quizplus · Accepted Answer

The substitution effect of a higher wage means that the wage rate for work is relatively more attractive compared to leisure. This encourages workers to supply more labour and work more hours, leading to an increase in the quantity of labour supplied. Option A is incorrect because the substitution effect of a higher wage makes work relatively more attractive than leisure, reducing the amount of leisure time taken. Option C is not correct because the substitution effect encourages workers to substitute leisure for work, not the other way around. Option D is unrealistic since no one would reduce their work time to zero just because their wage increased.

In Terms of Labour Supply,the Substitution Effect of a Higher