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.

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Definitions:

Direct Method

A way of preparing the cash flow statement where actual cash flows from operating activities are reported instead of adjustments to net income.

Sales Revenue

The total amount of money received by a company from selling goods or services before any expenses are deducted.

Balance Sheet Accounts

Accounts that are represented on the balance sheet, including assets, liabilities, and equity accounts.

Financing Activities

Involve transactions between a company and its investors and creditors, impacting the firm's capital structure.