Asked by Mitchell Allen on Apr 28, 2024
Verified
If an individual's labor supply curve is backward bending, then:
A) the income effect associated with a higher wage is greater than the substitution effect.
B) the substitution effect associated with a higher wage is greater than the income effect.
C) the substitution effect associated with a higher wage encourages more leisure.
D) A and C
E) B and C
Labor Supply Curve
A visual diagram that illustrates the connection between the amount of wages and the volume of labor that employees are prepared to offer.
Income Effect
Change in consumption of a good resulting from an increase in purchasing power, with relative prices held constant.
Substitution Effect
Change in consumption of a good associated with a change in its price, with the level of utility held constant.
- Understand the concept of the backward bending labor supply curve and the factors that cause it.
Verified Answer
RK
Rohit KumarMay 02, 2024
Final Answer :
A
Explanation :
The backward bending labor supply curve occurs when the income effect of a higher wage (leading to a desire for more leisure, thus working less) outweighs the substitution effect (the tendency to work more because leisure becomes relatively more expensive).
Learning Objectives
- Understand the concept of the backward bending labor supply curve and the factors that cause it.