Question

Suppose the market wage for cashiers increases from $7 per hour to $9 per hour.As a result, Pat, who is a cashier, now works five more hours per week. On the other hand Chris, who is also a cashier, now works five fewer hours per week.Chris's behavior illustrates the ______ effect of a wage increase.

Answer 1

Answer:

Income

Explanation:

Suppose the market wage for cashiers increases from $7 per hour to $9 per hour. As a result, Pat, who is a cashier, now works five more hours per week. On the other hand Chris, who is also a cashier, now works five fewer hours per week.Chris's behavior illustrates the Income effect of a wage increase.

As the income increases, few individual prefer to work fewer hours as now they are able to maintain target by working fewer than at previous wage rate. These people prefer leisure over higher income and want to settle down with limited income. These people  may have a backward bending individual labour supply curve – they may choose to work fewer hours when the wage rate rises.