Figure 17-4

-Refer to Figure 17-4.Which of the following is true if the wage rate increases from W₁ to W₂?
A)The income effect eventually becomes larger than the substitution effect.
B)The substitution effect eventually becomes larger than the income effect.
C)The income effect and the substitution effect are equal.
D)The supply curve is unit elastic.

Question

Figure 17-4
 
-Refer to Figure 17-4.Which of the following is true if the wage rate increases from W₁ to W₂?
A)The income effect eventually becomes larger than the substitution effect. 
B)The substitution effect eventually becomes larger than the income effect. 
C)The income effect and the substitution effect are equal. 
D)The supply curve is unit elastic.

Quizplus · Accepted Answer

When the wage rate increases from W₁ to W₂, the income effect eventually becomes larger than the substitution effect, leading to a backward-bending labor supply curve. This means that at higher wage rates, individuals may choose to work fewer hours because they can maintain the same standard of living with less work.

Figure 17-4 -Refer to Figure 17-4.Which of the Following Is True If