Exhibit 12.2

-Refer to Exhibit 12.2,which shows a backward-bending labor supply curve for an individual.In the figure below,which of the following is true at a wage rate of $14?

Question

Exhibit 12.2
 
-Refer to Exhibit 12.2,which shows a backward-bending labor supply curve for an individual.In the figure below,which of the following is true at a wage rate of $14?

Quizplus · Accepted Answer

At a wage rate of $14, the individual moves from point A to point B on the labor supply curve. At that point, the substitution effect dominates the income effect, as the increase in wage rate incentivizes the individual to work more hours, despite the decrease in the marginal utility of income. Therefore, option B is the correct answer.

Exhibit 12.2 -Refer to Exhibit 12.2,which Shows a Backward-Bending Labor Supply Curve