The figure given below shows a backward-bending labor supply curve for an individual. In the figure below, which of the following is true at a wage rate of $7?
Figure 12.3

A) The income effect dominates the substitution effect.
B) The substitution effect dominates the income effect.
C) The income effect exactly offsets the substitution effect.
D) No labor is supplied.
E) The individual will supply 30 hours of labor.
Correct Answer:
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