 the income and layer trade off, the competing substitution and income effects. Dear students, last class we have discussed with the help of examples, we discussed a pure substitution effect and a pure income effect, but today we will discuss the combination of these two, how these two effects will work together. So, in this context, we will take the example that how they work together. So, it depends on the real wage increase, this increase is whether permanent or temporary. A long term increase in the real wage will actually cause both these effects income as well as substitution effect. Due to substitution effect, if real wage increases permanently for a long longer period of time, due to substitution effect worker will supply more labor, because the reward of work is now increased, so worker will work more. Layer will be expensive, it will work more and work more. And because of the income effect, we have understood that because of the income effect, what will happen is that now the layer can be afforded more, layer is a normal good, so the layer will be more and what will happen in the end, the work will be less. So, due to substitution effect, labor supply is increasing and income effect is decreasing the labor supply. So, these two will move in the opposite direction. So, what will be the net effect? Overall, what will happen? With the increase of wage, the labor supply will increase or will be less. It means that when the income effect will be stronger, then what will happen? With the increase of wage, overall work will be less and when substitution effect will be stronger, then due to the increase of wage, labor supply will increase. And if both will be equal, they will offset each other, then it means that the wage is big but there is no change in the labor supply. So, what will be the net effect? Whether income effect will dominate or the substitution effect will dominate. So, in this case, the wage increase is expected length of time. If the wage is increasing for a long time, then it means that the income effect will be stronger and the income effect will be stronger, then the labor supply will be less. And if this temporary period is increased, then the substitution effect will be stronger and its implication is that the labor supply will increase. So, this theory cannot decide which effect will dominate. We will study this empirically, what data shows and what happens. So, the results of data come to us that when the temporary wage increases, then the labor supply increases because the substitution effect dominates and the income effect is stronger. And when the increase is of permanent nature, then the income effect will be stronger and the labor supply will be less. So, theoretically, all possibilities are there. What are the possibilities? That when the wage increases, then the labor supply increases, the labor supply decreases, and labor supply can be constant. When the income effect will be stronger and when the substitution effect will be stronger, then the income effect will be stronger. When the increase is of permanent nature and when the substitution effect will be stronger, then the increase will be of relatively temporary. Thank you.