When the substitution effect is greater than the income effect, Juanita will not supply more work if
A) the wage rate and the price level increase proportionately.
B) the percentage increase in the price level is greater than the percentage change in wages.
C) wages are falling faster than prices.
D) all of the above

Question

Quizplus · Accepted Answer

When the substitution effect is greater than the income effect, Juanita will not supply more work if the wage rate and the price level increase proportionately (A), the percentage increase in the price level is greater than the percentage change in wages (B), and wages are falling faster than prices (C). In all these scenarios, the real income either decreases or remains the same, which does not incentivize Juanita to supply more work.

When the Substitution Effect Is Greater Than the Income Effect