According to the Lucas supply function, when the substitution effect dominates the income effect, workers who experience a ________ price surprise will work ________ hours.
A) positive; more
B) positive; the same number of
C) negative; more
D) negative; the same number of

Question

Quizplus · Accepted Answer

According to the Lucas supply function, when the substitution effect dominates the income effect, workers will work more hours in response to a positive price surprise. A positive price surprise means that the wage rate increases, which makes working more attractive compared to leisure. This induces workers to work more, resulting in an upward shift of the labor supply curve.

According to the Lucas Supply Function, When the Substitution Effect