If the income effect of a wage increase equals the substitution effect, the labour supply curve is horizontal at the equilibrium wage.

Name: If the income effect of a wage increase equals the substitution effect, the labour supply curve is horizontal at the equilibrium wage.
Brand: Quizplus
Rating: 4.9 (47 reviews)

Question

Quizplus · Accepted Answer

The labor supply curve is backward-bending if the income effect equals the substitution effect, as workers will not change their hours worked when wages increase.

If the Income Effect of a Wage Increase Equals the Substitution