The combined effect (both income and substitution) of a wage increase is that
A) if the substitution effect outweighs the income effect, the labor supply curve slopes upward, but if the income effect outweighs the substitution effect, the labor supply curve is backward bending.
B) the income effect always dominates, leading to less work at a higher wage.
C) if the substitution effect outweighs the income effect, the labor supply curve is backward bending, but if the income effect outweighs the substitution effect, the labor supply curve slopes upward.
D) the substitution effect always dominates, leading to more work at a higher wage.
A
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Suppose the price level increases and real GDP remains the same. Then
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