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Assuming leisure is considered a normal good, what happens to the quantity of labor supplied when wages rise?

Consumer Theory vs. Real Consumers MCQs for PPSC, FPSC, NTS, and Pakistan government job tests. Select an option below, then read the explanation.

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Subject
Consumer Theory vs. Real Consumerseconomics-mcqs › consumer-theory-vs-real-consumers
Published
2 Jun 2019
Last updated
28 May 2026

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Explanation

When leisure is a normal good, an increase in wages can have two opposing effects: the substitution effect, which encourages more work due to higher opportunity cost of leisure, and the income effect, which may reduce labor supply because higher income allows more leisure. Therefore, labor supply will increase only if the substitution effect outweighs the income effect.

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Practice related questions from the same subject.

  1. 1.Assuming that consumption during youth and old age are both normal goods, how does a rise in the interest rate affect the amount saved?
  2. 2.What happens to the budget line if both income and prices double simultaneously?
  3. 3.Based on Exhibit 4, assume a consumer has €100 to spend and must decide between purchasing socks or belts. How would you classify a pair of socks in this scenario?
  4. 4.Refer to Exhibit 4. Assume a consumer is deciding between purchasing socks and belts, with an income of €100. If the price of socks decreases from €5 to €2 per pair, which movement illustrates the substitution effect?
  5. 5.When a rise in a consumer's income leads to a reduction in the amount of a product they buy, how is this product classified?
  6. 6.Consider a graph where the quantity of good X is represented on the x-axis and the quantity of good Y on the y-axis. If the indifference curves are concave toward the origin, how does the marginal rate of substitution of good Y for good X (the slope of the indifference curve) change as we move from a situation with a large amount of good X to one with a large amount of good Y?
  7. 7.At what point does a consumer achieve the optimal combination of two goods?
  8. 8.What is the name given to the slope at any point along an indifference curve?
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