The labor supply curve bends backward because
A)income effects are greater than substitution effects at higher wages.
B)substitution effects are greater than income effects at higher wages.
C)income effects are greater than substitution effects at lower wages.
D)substitution effects are greater than income effects at lower wages.

Question

Quizplus · Accepted Answer

The backward bending labor supply curve occurs because at higher wages, the income effect (the desire to enjoy more leisure because one can afford to work less) outweighs the substitution effect (the desire to work more hours because the reward for working is higher), leading individuals to supply less labor.

The Labor Supply Curve Bends Backward Because