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:

Delivering Newspapers

The process or occupation of distributing newspapers to subscribers or households.

Production Function

An equation or graph that shows the maximum output a firm can produce with a given set of inputs, under the current technology.

Labor

The human effort, both physical and mental, used in the production of goods and services, a critical factor in determining productivity and economic output.

Output

Output refers to the total quantity of goods and services produced by an economy or business in a specific period.