Assume That the Substitution Effect Dominates the Income Effect

question 248

Multiple Choice

Assume that the substitution effect dominates the income effect. When workers experience a positive price surprise, they

• A) correctly perceive that their real wage rate has fallen, which leads them to work fewer hours.
• B) incorrectly perceive that their real wage rate has fallen, which leads them to work fewer hours.
• C) correctly perceive that their real wage rate has risen, which leads them to work more hours.
• D) incorrectly perceive that their real wage rate has risen, which leads them to work more hours.