When wages increase, what would happen with respect to income and substitution effects for goods and services??

1 Answer
Jul 27, 2015

see explanation


When wages increase the level of income of a worker also increase, and this will cause him/her to consume a better commodity than what he/she was consuming before the wage increase. ( moving from consuming an inferior good to normal good)

That is to say that the worker will maximize his utility on a higher indifference curve