Unearned Income vs. Wage Increase on Work-Leisure Choice
The source of an individual's increased purchasing power significantly influences their work-leisure decision. An increase in unearned income (as in Figure 3.11) typically results in choosing more leisure and working less. In contrast, a wage increase (as in Figure 3.13a) can lead to working more. This difference arises because the wage increase creates a powerful substitution effect due to the higher opportunity cost of leisure. When this substitution effect is stronger than the income effect, the individual chooses to work more, an outcome not driven by unearned income which lacks a substitution component.
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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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