Question 1
If the income effect is less than the substitution effect and the wage rate decreases, individuals
◦ will supply more work.
◦ will supply less work.
◦ will consume less leisure.
◦ cannot be determined from the given information.
Question 2
If the income effect is ________ the substitution effect, the labor supply curve has a positive slope.
◦ greater than
◦ smaller than
◦ equal to
◦ unrelated to