The Assumption That Current-Period Labor Supply Is Positively Related to the Current-Period

question 2

Multiple Choice

The assumption that current-period labor supply is positively related to the current-period real wage is justified as long as the

• A) income effect dominates the substitution effect in the short run.
• B) income effect dominates the substitution effect in the long run.
• C) substitution effect dominates the income effect in the short run.
• D) substitution effect dominates the income effect in the long run.

---

Definitions:

Incentive

Something that motivates or encourages an individual or entity to act in a certain way.

Costs And Benefits

This is an analysis approach that compares the potential outcomes and implications, in terms of costs and benefits, of an action or decision.

Marginal Social Benefit

The extra advantage to society that comes from using an additional unit of a product or service.

Marginal Social Cost

The total cost to society of producing one additional unit of a good, including both private costs and externalities.