The labor supply curve starts to bend backward at the point where
A)the total utility of leisure exceeds the total disutility of labor.
B)the marginal utility of additional income becomes zero.
C)the income effect comes to dominate the substitution effect.
D)the substitution effect comes to dominate the income effect.

Question

Quizplus · Accepted Answer

The backward bending portion of the labor supply curve occurs when income effects dominate substitution effects. At this point, individuals choose to work less as their income increases, as they place a higher value on leisure time. This is because the additional income gained from working longer hours is offset by the negative effect on leisure time. As a result, the labor supply curve bends backwards instead of continuing to slope upwards.

The Labor Supply Curve Starts to Bend Backward at the Point