The empirical evidence that the aggregate amount of labour supplied declines in response to a permanent increase in the real wage confirms
A)the substitution effect of higher real wage.
B)the income effect of higher real wage.
C)both substitution and income effects of real wage.
D)that substitution effect dominates income effect.

Question

Quizplus · Accepted Answer

The income effect of a higher real wage suggests that as wages increase, individuals may choose to work less because they can maintain the same standard of living with fewer hours worked. This is consistent with the observation that the aggregate amount of labor supplied declines.

The Empirical Evidence That the Aggregate Amount of Labour Supplied