According to the Lucas supply function, workers who experience a positive price surprise will work fewer hours when
A) there is no substitution effect from a positive price surprise.
B) there is no income effect from a positive price surprise.
C) the substitution effect dominates the income effect.
D) the income effect dominates the substitution effect.

Question

Quizplus · Accepted Answer

The Lucas supply function suggests that if workers experience a positive price surprise, they will work fewer hours when the income effect (feeling wealthier because the real value of their wages has increased) dominates the substitution effect (the incentive to work more because the relative price of leisure has increased).

According to the Lucas Supply Function, Workers Who Experience a Positive