Author Question: Empirical evidence with respect to the labor supply decision suggests that (Read 100 times)

Pea0909berry · **on:** Apr 19, 2019

Question 1

Caroline's hourly wage rate was reduced from $22 to $16. As a result of the wage decrease, Caroline desires to work more hours and take fewer hours of leisure. For Caroline

◦ the income effect must be zero.
◦ the substitution effect dominates the income effect.
◦ the income effect dominates the substitution effect.
◦ the substitution effect must equal the income effect.

Question 2

Empirical evidence with respect to the labor supply decision suggests that

◦ the income effect seems to dominate for most people, which means that the aggregate labor supply responds negatively to an increase in the wage rate.
◦ the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds positively to an increase in the wage rate.
◦ the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds negatively to an increase in the wage rate.
◦ the income effect seems to dominate for most people, which means that the aggregate labor supply responds positively to an increase in the wage rate.

BUTTHOL369 · **Reply #1 on:** Apr 19, 2019

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