Question

Wages have risen in Europe since the 1970s and workers work substantially less than they did 40 years ago. Does this suggest that income effects or substitution effects dominate?

a. Income effect
b. Substitution effect

Answer 1

The correct answer is A. Income effect .

Step-by-step explanation:

In consumer theory, the income effect is the change in consumption that is due to a change in the consumer's real income, that is, his or her purchasing power. Thus, the fact that wages have increased notably, while working time has been reduced during the same period of time, is a clear sign that the working hour of each man within the productive circuit has today in day a purchasing power much higher than what it had in the past.