Assuming leisure is considered a normal good, what happens to the quantity of labor supplied when wages rise?

Show Answers

The labor supplied will increase without exception.Labor supply will rise only if the substitution effect is stronger than the income effect.Labor supply will grow only if the income effect dominates the substitution effect.The quantity of labor supplied will decrease in all cases.There will be no change in labor supply regardless of wage changes.

Explanation

When leisure is a normal good, an increase in wages can have two opposing effects: the substitution effect, which encourages more work due to higher opportunity cost of leisure, and the income effect, which may reduce labor supply because higher income allows more leisure. Therefore, labor supply will increase only if the substitution effect outweighs the income effect.