If the income effect of a wage change outweighs the substitution effect of a wage change, the labor-supply curve is
A) upward sloping.
B) horizontal.
C) vertical.
D) backward bending.

Question

Quizplus · Accepted Answer

When the income effect of a wage increase outweighs the substitution effect, individuals may choose to work less as their income increases, leading to a backward bending labor supply curve. This means beyond a certain wage level, higher wages lead to a decrease in the quantity of labor supplied.

If the Income Effect of a Wage Change Outweighs the Substitution