Question

When wage rate changes, income effect and substitution effect on leisure _____ each other. a. reinforce...

When wage rate changes, income effect and substitution effect on leisure
_____
each other.

a. reinforce

b. commiserate

c. fear

d. counteract

Homework Answers

Answer #1

Option A.

  • When wage rate changes, income effect and substitution effect on leisure reinforce each other.
  • That is, if leisure is an inferior good, then income effect will reinforce substitution effect as people will demand less leisure when income Increases or in other words higher wage will encourage people to work more.
  • Similarly if leisure is a normal good, then an increase in income will cause the demand for leisure to increase and the demand for work to decrease.
  • In this way both substitution and income effects reinforce each other on leisure.
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