Question

For the past year, Teddy has had a part-time job at which he is willing to work 30 hours each week. During Teddy's annual review, his boss grants him an 8 percent increase in his wage. As a result of the wage increase, Teddy is now willing to work 25 hours each week. Teddy's opportunity cost of ________ has risen and because for Teddy the substitution effect of the wage hike is ________ than the income effect.

Answer 1

Teddy's opportunity cost of leisure has risen and because for Teddy the substitution effect of the wage hike is greater than the income effect.

Step-by-step explanation:

Wage rate is considered as the opportunity cost of leisure.

Along these lines, increment in wage rate infers an expansion in circumstance cost of recreation.

In the event that a laborer works progressively after pay increment, at that point replacement impact of compensation increment overwhelms or is more prominent than salary impact of pay increment and the other way around.