If Jeff's wage rate rises, he decides to work more hours. From this, we can infer thatfor Jeff, the substitution effect is greater than the income effect. for Jeff, the substitution effect is less than the income effect. for Jeff, the substitution effect is equal to the income effect. Jeff is confused.

Question

Social Studies

Chaz

28 October, 08:07

If Jeff's wage rate rises, he decides to work more hours. From this, we can infer thatfor Jeff, the substitution effect is greater than the income effect. for Jeff, the substitution effect is less than the income effect. for Jeff, the substitution effect is equal to the income effect. Jeff is confused.

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Derek Wise · Answer 1

Answer:Substitution effect is greater than Income Effect

Explanation:

When there is increase in supply of labor as the wage rate increases then substitution effect dominates over Income effect.

on the other hand, When supply of labor decreases as the wage rate increases then income effect is stronger than substitution effect.

Here in this case with the increase in wage rate there is an increase in working hours. Therefore Substitution effect is greater than Income Effect