What Is the Combined Effect (Both Income and Substitution)of a Wage

question 72

Multiple Choice

What is the combined effect (both income and substitution) of a wage increase?

• 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.

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