Answer to Question #313318 in Microeconomics for Thapelo

Question

If wages fall, then:

A. According to the income effect, the worker’s demand for leisure will increase.

B. According to the substitution effect, the worker’s demand for leisure will decrease.

C. According to the substitution effect, the workers will substitute leisure time for

working.

D. The income and substitution effects will work in the same direction.

E. The opportunity cost of not working increases.

Answer 1

C. According to the substitution effect, the workers will substitute leisure time for working.

This is because the workers will want to earn more with the existing fall in wages. For this reason, they will minimize their leisure time for working