7. (a) The Observed Change Money Income (dollars) Observed 192 Change B N2 128 N1 64 U2 U1 0 8 16 Hours of Leisure 16 1 1 00 0 Hours of Work Consider the above figure. If the wage rate is initially $8 per hour and subsequently increases to $12 per hour, then the income effect dominates and optimal hours of work increase by 3 hours. False. The substitution effect is dominating. A wage increase makes you feel more wealthy so they would choose less work