Dominance of the Substitution Effect in the Scenario of Figure 3.13
In the scenario depicted across Figure 3.13, the wage increase leads to a decision to work more and take less free time. This outcome occurs because the substitution effect, which encourages less leisure due to its higher opportunity cost, is larger in magnitude than the income effect, which encourages more leisure. The decomposition in Figure 3.13b visually confirms that the sum of these two opposing forces results in a net reduction in free time.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.3 Doing the best you can: Scarcity, wellbeing, and working hours - The Economy 2.0 Microeconomics @ CORE Econ
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Learn After
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