For which of the following workers would the substitution effect be more likely to outweigh the income effect of an increase in wage?
A)Air traffic controller
B)Marketing manager
C)Waitress
D)Dentist

Question

Quizplus · Accepted Answer

The substitution effect occurs when workers choose to work more hours as their wage rate increases, substituting labor for leisure because the opportunity cost of not working has risen. The income effect, on the other hand, happens when workers decide to work fewer hours as their wage increases because they can maintain the same standard of living with less work. For a waitress, who likely earns a lower wage compared to the other professions listed, an increase in wage would more significantly increase the relative value of working additional hours compared to leisure time, making the substitution effect more likely to outweigh the income effect. Higher-paid professionals like air traffic controllers, marketing managers, and dentists might be more inclined to enjoy their increased income by working the same or fewer hours, thus experiencing a stronger income effect.

For Which of the Following Workers Would the Substitution Effect