A change in the Wage is also a change in the price of leisure. As W increases it becomes more expensive to enjoy leisure because of the higher wage forgone. Like any price change there is both an income effect and a substitution effect associated with a change in the wage.

    At a low wage, the substitution effect dominates. This means that as W increases you substitute away from increasingly expensive leisure and work more. At some point though, above W*, wages may be so high that the income effect dominates. At this point you are earning so much you choose to purchase the increasingly expensive leisure and work less.

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