Business, 21.04.2020 20:04, henryzx900

Consider an indifference curve for someone deciding how to allocate time between work (and thus consumption) and leisure. Suppose the wage increases.

The substitution effect induces you to work and consume in response to higher wages. If consumption is a normal good, the income effect induces you to consume when your wage rises, but if consumption is an inferior good, the income effect induces you to consume in response to higher wages.

True or False: The person’s consumption may fall as a result of the higher wage if consumption is an inferior good.

a. True
b. False

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Consider an indifference curve for someone deciding how to allocate time between work (and thus cons...