The income effect of higher wages:
A)always works to keep the labor supply curve positively sloped.
B)can work to make the labor supply curve vertical at full employment.
C)can actually work to reduce the full employment supply of labor without appropriate taxation policies.
D)can push the vertical region of the labor supply curve well beyond the marginal revenue product schedule of derived demand.
E)none of the above.

Question

Quizplus · Accepted Answer

The income effect of higher wages does not necessarily always keep the labor supply curve positively sloped, make it vertical at full employment, reduce the full employment supply of labor without appropriate taxation policies, or push the vertical region of the labor supply curve beyond the marginal revenue product schedule of derived demand. The income effect can lead to various outcomes depending on other factors such as preferences for leisure over work, the substitution effect, and specific economic conditions.

The Income Effect of Higher Wages