The substitution effect of a wage decrease in the work-leisure model results in the worker choosing to
A)work less than before.
B)work more than before.
C)possibly work more or less than before.
D)work more with a higher level of consumption.

Question

Quizplus · Accepted Answer

According to the substitution effect, when the wage decreases, the opportunity cost of leisure time increases since the worker now gets paid less for each hour worked so the worker will choose to work less and enjoy more leisure time. Therefore, the correct answer is A: work less than before.

The Substitution Effect of a Wage Decrease in the Work-Leisure