If wages decrease and workers choose to work more hours or more shifts, their behavior is evidence of
A)the substitution effect.
B)the income effect.
C)rational expectations.
D)rational ignorance.

Question

Quizplus · Accepted Answer

When wages decrease and workers choose to work more hours or more shifts to maintain their income, it demonstrates the income effect. This effect describes how changes in income (due to changes in wages, in this case) affect the quantity of labor supplied. Workers are trying to compensate for the lower wage rate to maintain their overall income.

If Wages Decrease and Workers Choose to Work More Hours