Figure 10.3
-Refer to Figure 10.3.In Panel A,at low wages (segment i)
A) the substitution effect outweighs the income effect.
B) the income effect outweighs the substitution effect.
C) the substitution effect offsets the income effect.
D) labour suppliers demand more leisure as wages increase.

Question

Figure 10.3 
-Refer to Figure 10.3.In Panel A,at low wages (segment i)
A) the substitution effect outweighs the income effect. 
B) the income effect outweighs the substitution effect. 
C) the substitution effect offsets the income effect. 
D) labour suppliers demand more leisure as wages increase.

Quizplus · Accepted Answer

At low wages (segment i), the slope of the budget constraint is relatively steep, indicating that the opportunity cost of leisure is relatively high compared to the cost of consumption. This makes the substitution effect stronger than the income effect, leading to an increase in labour supply as wages increase.

Figure 10.3 -Refer to Figure 10.3.In Panel A,at Low Wages (Segment I)