Consider the effect of an increase in wage on the choice of time allocation between leisure and work of Mister Smith, assuming that he uses the entire income earned from work for consumption. In case free time is an inferior good (its consumption decreases as income gets higher), will Mister Smith increase working hours when the
wage increases? If free time is a normal good (i.e. its consumption increases as income increases), which condition should hold to observe an increase in working hours of Mister Smith after an increase in wage?