Question

Explain why some people work more when their income increases while others work less.

Answer 1

When the income increases there are people who work more and at the same time there are people who work less and that phenomena is explained by the substitution effect and the income aeffect. When income increases substitution effect says substitute the labour for leisure, that means, work for more hours because the opportunity cost of pursuing leisure has increased, and, on the other hand, Income effect says that work for less hour because income has increased therefore one can substitute the leisure for working hours. If the substitution effect is greater than the income affect then the people will work for more hours and if the income effect is greater than the substitution effect then the people will work for less hours.