The labor supply curve may have a backward-bending portion if, at higher wages, the income effect is
A)smaller than the substitution effect.
B)larger than the substitution effect.
C)negative.
D)zero.

Question

Quizplus · Accepted Answer

The labor supply curve may have a backward-bending portion if, at higher wages, the income effect (where individuals choose to work less because they can maintain the same standard of living with less work) is larger than the substitution effect (where individuals choose to work more because the opportunity cost of not working is higher). This can lead to a decrease in labor supplied at higher wage rates.

The Labor Supply Curve May Have a Backward-Bending Portion If