Question

36. The income effect for labor supply states that people work A) less as wages rise because their ability to purchase goods increases. B) more as wages rise because their ability to purchase goods increases. C) less as wages rise because the opportunity cost of leisure increases. D) more as wages rise because the opportunity cost of leisure increases.
I got 2 different answers please I need the correct one

Answer 1

When the substitution effect dominates for a wage increase the people will work for more hours because the opportunity cost for the leisure has increased. The work becomes more attractive now, this is the case of substitution effect. So for the income effect, with the higher wages the workers can maintain their existing standard of living by working less hours, so when the income effect dominates for a wage increase the people will work less hours.

Ans: A). Less as wages rise because their ability to purchase the goods increases.