Labor Supply Response to a Wage Increase

A university student has minimal financial obligations and is deciding how many hours to work at a campus coffee shop during the summer. They are very flexible and see working for extra spending money and enjoying free time as easily interchangeable options. If the coffee shop offers a small raise in the hourly wage, what is the most probable impact on the student's decision to work, and what is the underlying economic reason?

For a student on summer break with significant flexibility in their schedule, a small increase in their hourly wage will likely cause them to work fewer hours. This is because the income effect, which makes them feel wealthier and thus desire more leisure time, will be stronger than the substitution effect.

Student Lifeguard's Response to a Wage Cut

Comparing Labor Supply Decisions

Match each individual's scenario to the most likely change in their work hours following a small increase in their hourly wage.

A student with a flexible summer schedule views leisure time and the goods they can buy from working as highly interchangeable. When offered a slightly higher hourly wage, the ______ effect will dominate, causing them to significantly increase their work hours.

Analyzing a Student's Summer Work Decision

A student with a flexible summer schedule and minimal financial obligations is offered a job. They consider the money earned from working and the enjoyment of free time to be easily interchangeable. If the offered hourly wage increases slightly, which statement provides the most accurate economic analysis of why they are likely to work significantly more hours?

Evaluating a Summer Job Decision