Lakisha's labor supply curve is downward sloping for wage rates greater than $40 per hour and upward sloping for wage rates less than $40 per hour.If leisure is a normal good for Lakisha, then:

Question

Quizplus · Accepted Answer

With a downward sloping labor supply curve above $40 per hour, Lakisha is already working less and has more leisure time at higher wages. Therefore, the substitution effect of a wage increase (the incentive to work more due to higher wages) is weaker than the income effect (the ability to work less because of the already increased income). Therefore, the correct answer is C. Option A is incorrect because the substitution effect is weaker, not stronger. Option B is incorrect because it assumes that Lakisha's wage is less than $40 per hour, but we don't know that for sure. Option D is incorrect because we don't have enough information to say anything about the effects at a $20 wage rate.

Lakisha's Labor Supply Curve Is Downward Sloping for Wage Rates