According to the substitution effect, what happens to leisure consumption when wages rise?

Show Answers

Leisure costs decrease, leading households to consume more of it.Leisure costs increase, causing households to consume more leisure time.Leisure becomes costlier, so households reduce the amount of leisure they take.Leisure costs decrease, resulting in households choosing less leisure.

Explanation

When wages increase, leisure time effectively becomes more expensive because the opportunity cost of not working is higher. As a result, the substitution effect predicts that households will cut back on leisure and work more, reducing the amount of leisure they consume.