Authors libby rittenberg 644

time spent working A higher wage thus produces a positive substitution effect on labor supply But the higher wage also has an income effect An increased wage means a higher income, and since leisure is a normal good, the quantity of leisure demanded will go up And that means a reductionin the quantity of labor supplied For labor supply problems, then, the substitution effect is always positive; a higher wage induces a greater quantity of labor supplied But the income effect is always negative; a higher wage implies a higher income, and a higher income implies a greater demand for leisure, and more leisure means a lower quantity of labor supplied With the substitution and income effects working in opposite directions, it is not clear whether a wage increase will increase or decrease the quantity of labor supplied—or leave it unchanged Figure 12.7 "The Substitution and Income Effects of a Wage Change" illustrates the opposite pull of the substitution and income effects of a wage change facing an individual worker A janitor, Meredith Wilson, earns $10 per hour She now works 42 hours per week, on average, earning $420 Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 644