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Unformatted text preview: x The substitution effect of a higher wage means that the relative price of leisure is now higher. Given the law of demand, the household will buy less leisure. x When the substitution effect outweighs the income effect, the labor supply curve slopes upward. Income Effect a Wage Change x The income effect of higher wage means that households can now afford to buy more leisure. x When the income effect outweighs the substitution effect, labor supply curve bends backward. wage qty of labor supplied wage qty of labor supplied Page 67...
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- Fall '10
- Opportunity Cost