The Combined Effect of a Real Wage Increase Is That

question 63

Multiple Choice

The combined effect of a real wage increase is that

• A) the income effect always dominates, leading to fewer hours worked at a higher wage.
• B) the substitution effect always dominates, leading to more hours worked at a higher wage.
• C) if the substitution effect outweighs the income effect, the labour supply curve slopes downward, but if the income effect outweighs the substitution effect, the labour supply curve slopes upward.
• D) if the substitution effect outweighs the income effect, the labour supply curve slopes upward, but if the income effect outweighs the substitution effect, the labour supply curve slopes downward.

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