The following figure depicts an individual's supply of labor.

-Refer to the figure above.The substitution effect dominates the income effect only between ________.

Question

The following figure depicts an individual's supply of labor.
 
-Refer to the figure above.The substitution effect dominates the income effect only between ________.

Quizplus · Accepted Answer

The substitution effect dominates the income effect when the wage rate increases from $5 to $8 (from the origin to point B) because the individual substitutes leisure (represented on the vertical axis) for work (represented on the horizontal axis) due to the higher wage. However, as the wage rate continues to increase from $8 to $10 (from point B to point C), the income effect dominates, and the individual increases their supply of labor due to the increased purchasing power of their higher wage. Therefore, the answer is B, the origin and point B.

The Following Figure Depicts an Individual's Supply of Labor