If the income effect is ________ the substitution effect, the labor supply curve has a positive slope.
A) greater than
B) smaller than
C) equal to
D) unrelated to

Question

Quizplus · Accepted Answer

When the income effect is smaller than the substitution effect, it means that the increase in wages encourages more work due to the higher opportunity cost of leisure (substitution effect) more than it encourages leisure due to higher income (income effect), leading to a positive slope in the labor supply curve.

If the Income Effect Is ________ the Substitution Effect, the Labor