Which of the following statements is true,assuming leisure is a normal good?
A) If the income effect is sufficiently large, the labor supply curve will bend backwards.
B) If the income effect is sufficiently small, the labor supply curve will bend backwards.
C) If the income effect is sufficiently large, the labor supply curve will slope down.
D) If the income effect is sufficiently large, the labor supply curve will shift to the left.

Question

Quizplus · Accepted Answer

If leisure is a normal good, an increase in income will lead to an increase in the quantity of leisure demanded. As a result, the income effect will induce workers to supply less labor. If the income effect is sufficiently large, it will outweigh the substitution effect (where a higher wage encourages workers to supply more labor) causing the labor supply curve to bend backwards.

Which of the Following Statements Is True,assuming Leisure Is a Normal