Figure 14.1.2
-Assume that as the wage rate rises a worker's substitution effect for leisure is larger than the income effect. We can conclude that in this region, the worker's:
A) labor supply curve will be backward bending.
B) labor supply curve will have the usual upward slope.
C) labor supply curve will be completely inelastic.
D) supply curve will be horizontal.

Question

Figure 14.1.2
-Assume that as the wage rate rises a worker's substitution effect for leisure is larger than the income effect. We can conclude that in this region, the worker's:
A) labor supply curve will be backward bending. 
B) labor supply curve will have the usual upward slope. 
C) labor supply curve will be completely inelastic. 
D) supply curve will be horizontal.

Quizplus · Accepted Answer

When the substitution effect for leisure is larger than the income effect as wage rates rise, it means that the worker is more inclined to substitute leisure for labor (i.e., work more) because the opportunity cost of not working is higher. This leads to an increase in the quantity of labor supplied as wages rise, which is represented by the usual upward slope of the labor supply curve.

Figure 14.1.2 -Assume That as the Wage Rate Rises a Worker's Substitution