 trade off the competing substitution and income effects. So, the relationship between real wage and the labor supply by real wage we mean the amount of real income a worker receives in exchange for working an hour or a day. So, real wage is the most important determinant of labor supply. The effect of real wage on labor supply can be decomposed with the help of substitution effect and the income effect. By substitution effect we mean that when a real wage increase this, it encourages more work. So, this will result in less layer. This is in fact the price of layer. So, this means that when we enjoy a layer for an hour, what we pay for that is that we do not work for an hour and we do not work for that. So, in this sense we can say that when the wage increase this means that the price of the layer increases. So, we know in economics that whatever the price is, people use it less and increase the cost. So, when the wage increases then the layer because it is expensive. So, this will reduce the layer and in return it will have more work. So, we say substitution effect that the individual is substituting the work for the layer. Work is increasing and the layer is decreasing. So, substitution is income effect. Income effect means that when the real wage increase, then now the individual can have more income with the same amount of work. So, first suppose that the work that was being done for 10 hours increases the real wage and now it will be able to do the same amount of work. And when it will do more work, then it will be able to afford more layer and it will be able to afford more consumption. We assume that layer and consumption are both normal goods. Do you know that in microeconomics normal goods mean that those things where income effect is positive. That is, income increases their use and their use of income is reduced. So, in this sense, we can assume that when the real wage increases then what will happen because of substitution effect? It will become expensive and because of being expensive it will reduce its use. Its use of income means that the individual will do more work. So, because of substitution effect, the labor supply will increase. The real wage increases. And on the other hand, what will happen because of income effect? That the wage increases and the income increases. And since the time is a normal goods and the use of time will increase, then it means that now it will do less work. So, with this you can understand that by increasing the real wage there are two types of opposite effects. Because of substitution effect, work is increasing and because of income effect work is decreasing. So, these two opposing and competing effects are the real wage increases. So, to understand these two, first of all, we understand that what is a pure substitution effect and what is a pure income effect and then later we will see how they compete with each other and then what is the net result of that. For example, for pure substitution effect we are taking an example that suppose that the wage increases it is very temporary, it is just one day increase. So, what will be the impact of this one day increase? The impact of this one day increase is that in that special day, the day the wage increases, that day the layer and work trade-off will affect it. That day the layer will be very expensive. Because people are getting more money to work that day, that is why people will lower the layer and work more that day. But its income effect will be negligible. Because of increasing the wage one day, the lifetime wealth, the lifetime income will not have any effect on it. That is why we can say that one day increase in the real wage is a case of pure substitution effect. Similarly, to understand the pure income effect, suppose we take an example that a person's lottery comes out. So, what will happen if the lottery comes out? His income will definitely increase, his lifetime wealth will increase and because of increasing the lifetime wealth, he will feel wealthier. But his income effect will be increased. Now, he can afford a higher layer, that is why he will do the work. But his substitution effect will be zero. Because when his lottery comes out, in fact, the trade-off between layer and work will have no impact on it. That means if he wants to do a lower or lower layer, then there will be no effect on the lottery coming out. That is why we can say that this is a pure income effect, and its substitution effect will be zero. Similarly, there is another example. If people become optimist about their future, because their future wage is expected to increase, then this too will not cause a substitution effect. Because substitution effect will cause a cost. If they understand that they should use a lower or lower layer because their cost has changed. So, this is related to the future. That is why this is also an example in which substitution effect is zero and income effect is present. So, we got help in understanding these two things separately. In the next module, we will discuss how we can compete with each other. Thank you.