In the upward-sloping portion of the individual labor-supply curve, the substitution effect is
A)greater than the income effect.
B)less than the income effect.
C)equal to the income effect.
D)exactly offset by the income effect.

Question

Quizplus · Accepted Answer

In the upward-sloping portion of the individual labor-supply curve, the substitution effect is greater than the income effect. This is because as the wage rate increases, the opportunity cost of leisure increases, incentivizing individuals to work more (substitution effect). However, as income increases with higher wages, individuals may choose to consume more leisure instead of work more (income effect). However, in the upward-sloping portion of the curve, the substitution effect dominates, leading to an overall increase in labor supply.

In the Upward-Sloping Portion of the Individual Labor-Supply Curve, the Substitution