As Wages Rise, If an Employee Works the Same Number

question 352

Multiple Choice

As wages rise, if an employee works the same number of hours as before, then the

• A) substitution effect dominates the income effect.
• B) substitution effect and the income effect are of equal magnitude.
• C) income effect dominates the substitution effect.
• D) employee's income will fall.

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Definitions:

Fixed Operating Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance.