单选题 When smaller amounts of additional labor are supplied in response to increases in the wages offered, this is known as the:

A. substitution effect.
B. income effect.
C. marginal rate of substitution.

【正确答案】 B

【答案解析】The income effect results in smaller additions to the labor supply as wages increase. Like any good, income received in the form of wages has a decreasing marginal utility. When the point is reached at which the utility received is equal to the marginal cost of leisure foregone, the maximum amount of labor that will be offered is reached.