Answer to Question #60400 in Microeconomics for Bob

Question

If leisure is a normal good, then the income effect of a decrease in wage will

a. decrease the number of hours worked.
b. increase the number of hours worked.
c. increase the number of leisure hours.
d. increase the sum of leisure plus hours worked.

Answer 1

b. increase the number of hours worked.

If leisure is a normal good - the demand for it increases as income increases - an increase in income tends to make workers supply less labour (that is, hours worked) so they can "spend" the higher income on leisure. Conversely a decrease in income tends to to make workers supply more labour.