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Figure: Joanna's Time Allocation Budget Line
-(Figure: Joanna's Time Allocation Budget Line) Joanna's Time Allocation Budget Line depicts what happens when she can choose how to spend 40 hours. If Joanna's wage rate increases and she ends up working more hours, for her:
A) the substitution effect dominates.
B) the income effect dominates.
C) the substitution and income effects cancel each other out.
D) the substitution effect becomes ineffective.

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Use the following to answer questions:
Figure: Joanna's Time Allocation Budget Line 
-(Figure: Joanna's Time Allocation Budget Line) Joanna's Time Allocation Budget Line depicts what happens when she can choose how to spend 40 hours. If Joanna's wage rate increases and she ends up working more hours, for her:
A) the substitution effect dominates. 
B) the income effect dominates. 
C) the substitution and income effects cancel each other out. 
D) the substitution effect becomes ineffective.

Quizplus · Accepted Answer

When Joanna's wage rate increases and she chooses to work more hours, it indicates that the substitution effect, which makes leisure more expensive relative to work, dominates over the income effect, which would typically lead her to work fewer hours as her income increases.

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