32. Suppose that in a labor market, the substitution effect is less important in magnitude than...
32. Suppose that in a labor market, the substitution effect is less important in magnitude than the income effect. As a result,
A. the labor demand curve is upward sloping.
B. the labor demand curve is downward sloping.
C. the labor supply curve is upward sloping.
D. the labor supply curve is downward sloping.
can you explain?thank you
Homework Answers
Option D
- Income effect is said to occur when the wage increase causes people to spend more time on leisure while the substitution effect is said to occur when the wage increase causes people to work more.
- If the substitution effect is less important in magnitude than the income effect than the opportunity cost of work hours Increases which causes workers to spend more time on leisure and devote Less time to working.
- This will lead to a negative sloping labour supply curve and hence the labour supply curve slopes downwards.
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