Asked by Ambreen Chattha on Jun 24, 2024
Verified
As wage rates rise to extremely high levels,
A) the income effect becomes stronger than the substitution effect.
B) the substitution effect becomes stronger than the income effect.
C) both the income effect and substitution effect become stronger.
D) both the income effect and substitution effect become weaker.
Wage Rates
The fixed amount of compensation paid to employees for their labor, typically expressed as payment per hour or per month.
Income Effect
The alteration in a person's or an economy's earnings and the effect of this alteration on the demand for a specific product or service.
Substitution Effect
The economic principle that as prices rise or incomes decrease, consumers will replace more expensive items with less costly alternatives.
- Examine the influence of wage rate variations on the substitution and income effects.
Verified Answer
Learning Objectives
- Examine the influence of wage rate variations on the substitution and income effects.
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