Use the Following to Answer Questions

question 140

Multiple Choice

Use the following to answer questions:
Figure: Davina's Labor Supply Choice
-(Figure: Davina's Labor Supply Choice) The figure Davina's Labor Supply Choice shows Davina's time allocation budget line when her hourly wage is $10 or $15 and she has 80 hours to allocate between labor and leisure; it also shows two of her indifference curves for income and leisure. As Davina's hourly wage rises from $10 to $15:

• A) the income effect is greater than the substitution effect.
• B) the substitution effect is greater than the income effect.
• C) the substitution effect is equal to the income effect.
• D) It is impossible to compare the income and substitution effect.

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