A backward-bending supply curve of labor shows that at relatively high 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 shows that as wages increase, the income effect (workers can afford to work less and have more leisure time) dominates the substitution effect (workers are incentivized to work more due to the higher wage). This leads to a negative slope of the supply curve, as more and more workers opt for leisure time at higher wages.

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