Question
Which of the following statements on income and substitution effects is correct in the context of an increase in the hourly wage of a worker
Which of the following statements on income and substitution effects is correct in the context of an increase in the hourly wage of a worker who can choose their work hours?
Question options:
The income effect results from the increase in opportunity cost of free time assuming there was no change in income.
The substitution effect is related to a parallel shift of the budget constraint to the right.
The overall effect of the wage increase depends on which of the two effects is dominant.
The two effects have similar impacts on the person's decision that is they operate in the same direction
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