Wealthy people will tend to have vertical labor supply curves
A) only if their income effect just offsets their substitution effect.
B) only if their income effect is greater than their substitution effect.
C) only if their income effect is less than their substitution effect.
D) only if they don't have an income effect.

Question

Quizplus · Accepted Answer

Wealthy people will tend to have vertical labor supply curves only if their income effect just offsets their substitution effect. This is because the income effect of a higher wage will lead them to want to work less, while the substitution effect will lead them to want to work more. If the income effect just offsets the substitution effect, then the overall effect on their labor supply will be zero, and their labor supply curve will be vertical.

Wealthy People Will Tend to Have Vertical Labor Supply Curves