When the substitution effect is greater than the income effect, Donna will supply more work if
A) the wage rate and the price level increase proportionately.
B) the percentage increase in the price level is greater than the percentage change in wages.
C) wages are falling faster than prices.
D) none of the above

Question

Quizplus · Accepted Answer

When the substitution effect is greater than the income effect, Donna will supply more work if the wage rate increases, making leisure more expensive relative to work. However, none of the provided options directly describe a scenario where only the wage rate increases without a proportional or greater increase in the price level, which would be necessary for the substitution effect to dominate and lead to an increase in work supply.

When the Substitution Effect Is Greater Than the Income Effect