In order for there to be a backward-bending supply of labor curve, it must be the case that
A) at low wage rates, the income effect of a wage increase exceeds the substitution effect, but at high wage rates the substitution effect of a wage increase exceeds the income effect.
B) at low wage rates, the substitution effect of a wage increase exceeds the income effect, but at high wage rates the income effect of a wage increase exceeds the substitution effect.
C) the income effect of a wage increase exceeds the substitution effect at all wage rates.
D) the substitution effect of a wage increase exceeds the income effect at all wage rates.
Correct Answer:
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