The Combined Effect (Both Income and Substitution) of a Wage

question 92

Multiple Choice

The combined effect (both income and substitution) of a wage increase is that

• A) the substitution effect always dominates, leading to more work at a higher wage.
• B) the income effect always dominates, leading to less work at a higher wage.
• C) 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 is backward bending.
• D) if the substitution effect outweighs the income effect, the labour supply curve is backward bending, but if the income effect outweighs the substitution effect, the labour supply curve slopes upward.

---

Definitions:

Lease Payments

Regular payments made by a lessee to a lessor for the use of a leased asset.

CCA Rate

The percentage rate used in Canada to calculate capital cost allowance, which is a deductible expense for tax purposes on the depreciation of assets.

Break-Even Lease Payment

The lease payment amount at which the cost of leasing equals the financial benefits, resulting in no net loss or gain.

Straight-Line Depreciation

A way to distribute the expense of a tangible property over its lifespan in equal amounts each year.