If leisure is considered a normal good, what is the impact on labor supply when a wage rise causes the income effect to outweigh the substitution effect?

Show Answers

Labor supply remains unchanged.Labor supply declines.Labor supply might either increase or decrease.Labor supply goes up.Labor supply fluctuates unpredictably.

Explanation

When leisure is a normal good and the income effect surpasses the substitution effect after a wage increase, individuals tend to work less because they can afford more leisure time. Therefore, labor supply decreases.