A backward-bending supply curve of labor shows that at relatively low wages the _____ effect dominates the _____ effect,and the supply curve has a _____ slope.
A)income;substitution;positive
B)income;substitution;negative
C)substitution;income;positive
D)substitution;income;negative

Question

Quizplus · Accepted Answer

The backward-bending supply curve of labor illustrates that at relatively low wages, the substitution effect (the tendency to substitute labor for leisure as wages increase, making work more attractive) dominates the income effect (the tendency to work less as income increases, allowing more leisure time), resulting in a positive slope of the supply curve. As wages increase beyond a certain point, the income effect overtakes the substitution effect, potentially leading to a decrease in labor supplied, hence the "backward-bending" nature.

A Backward-Bending Supply Curve of Labor Shows That at Relatively