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when the 3) A dominating substitution effect will result in wage rate increases. A) A positively sloped labor supply (The hou
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Answer #1

There is a choice between work and rest.

If wages increase, work becomes more profitable than leisure. This is known as substitution effect.
However, with higher income/wages, he can maintain a decent standard of living through less working for less hours. This is known as income effect.
The substitution effect of higher wages means that workers will have leisure to do more hours of work because work now has a higher reward.

The income effect of higher wages means that workers will reduce their working hours because they can maintain a target level of income through fewer hours.

If the substitution effect is greater than the income effect, people will do more work. However, we can get a fixed hourly salary, where we can work fewer hours.

It depends on the worker in question. If you are lazy and prefer leisure, higher wages will enable you to work less. The income effect will soon dominate. If you have a lot of debt and a commitment to spend, it will take a long time to have an income effect.

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