Because Leisure Is a Normal Good, an Increase in the Wage

question 68

Multiple Choice

Because leisure is a normal good, an increase in the wage rate will result in

• A)an increase in the quantity of labour supplied because of both the substitution effect and the income effect.
• B)a decrease in the quantity of labour supplied because of the substitution effect and an increase in the quantity of labour supplied because of the income effect.
• C)an increase in the quantity of labour supplied because of the substitution effect and a decrease in the quantity of labour supplied because of the income effect.
• D)an increase in the quantity of labour supplied because of the substitution effect.At low wages the income effect causes an increase in the quantity of labour supplied, but at high wages the income effect causes a decrease in the quantity of labour supplied as the wage rises.

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Definitions:

Short-Run Output

The production level of goods and services in the short term, often under fixed conditions or capacities.

Expected Price Level

The anticipated average price of goods and services in an economy at a future time, influencing consumer and business decisions.

Short-Run Aggregate Supply Curve

A graphical representation showing how the total production of goods and services in an economy varies with changes in the price level in the short term.

Actual Price Level

The current index of prices for goods and services in an economy, reflecting the purchasing power of money at a specific point in time.