According to the Lucas supply function, when the income effect dominates the substitution effect, workers who experience a ________ price surprise will work ________ hours.
A) positive; more
B) positive; fewer
C) negative; fewer
D) negative; the same number of

Question

Quizplus · Accepted Answer

When the income effect dominates the substitution effect, workers will work fewer hours when they experience a positive price surprise (an increase in the wage rate). This is because the increase in income from the higher wage rate allows workers to meet their desired level of consumption with less work, reducing the incentive to work more hours.

According to the Lucas Supply Function, When the Income Effect