Assume that the income effect dominates the substitution effect. When wages rise
A) people will work more hours.
B) people will work fewer hours.
C) people will work the same number of hours.
D) the effect on the hours people work is ambiguous.

Question

Quizplus · Accepted Answer

When the income effect dominates the substitution effect, an increase in wages leads individuals to feel wealthier, and thus they may choose to work fewer hours to enjoy more leisure time, reflecting their preference for leisure over additional work at higher wages.

Assume That the Income Effect Dominates the Substitution Effect