Question

Joe, Patrick, and Adam are friends. They have the same preference over consumption and leisure. Joe has two jobs. He auditions for sitcoms during daytime and works at CVS at night time. Patrick works from 9 to 5 as a curator at a local museum. Adam is a partner of a law firm and works over time almost every week. Clearly both Joe and Adam work more than Patrick. This is because that

for Joe income effect dominates while for Adam substitution effect dominates.
in both cases, income effect dominates.
in both cases, substitution effect dominates.
for Joe substitution effect dominates while for Adam income effect dominates.

Answer 1

The best answer to the question: Clearly both Joe and Adam work more than Patrick. This is because:___, would be: For Joe income effect dominates while for Adam substitution effect dominates.

Step-by-step explanation:

The income effect and the substitution effect are two theories used in economics to understand how market changes and economic changes may impact the way people consume and demand for goods and services. In both cases, income is part of the issue, but while in the income effect this factor directly explains the impact of purchasing capacities on consumption of goods and services, the substitution effect explains how consumers will affect their consumption choices in response to a change in their financial status.

Joe works much more than Patrick because evidently his daytime job does not meet his financial requirements; therefore in order for him to be able to meet these demands and increase his income capacity, he needs to work two jobs; one during the daytime and one in the nighttime. The income effect thus, dominates Joe.

In the case of Adam, he does not have two jobs, but he chooses to do overtime in his one job, which means he will increase his financial situation by making more money. Adam substitutes his leisure time for work in order to increase his financial status and maintain thus, his consumption preferences. He is using substitution.