When consumption and leisure are both normal goods, an increase in real dividend income minus taxation, the rational consumer
A)reduces consumption and increases leisure.
B)increases consumption and increases work.
C)increases consumption and increases leisure.
D)increases consumption and reduces leisure.
E)reduces consumption and reduces leisure.

Question

Quizplus · Accepted Answer

An increase in real dividend income minus taxation is an increase in real income. When both consumption and leisure are normal goods, the consumer's demand for both goods increases as income increases. Therefore, the rational consumer would increase consumption and increase leisure.

When Consumption and Leisure Are Both Normal Goods, an Increase