Exhibit 12.7

-Refer to Exhibit 12.7,which shows a backward-bending labor supply curve for an individual.In the figure below,when the wage rate increases from $9 to $12,the substitution effect outweighs the income effect.

Question

Exhibit 12.7
 
-Refer to Exhibit 12.7,which shows a backward-bending labor supply curve for an individual.In the figure below,when the wage rate increases from $9 to $12,the substitution effect outweighs the income effect.

Quizplus · Accepted Answer

The backward-bending labor supply curve indicates that at a certain point, higher wages will cause individuals to choose leisure over work, resulting in a decrease in labor supply. This occurs when the income effect outweighs the substitution effect. However, in this case, the question states that when the wage rate increases from $9 to $12, the substitution effect outweighs the income effect, which is true according to the graph. Therefore, the answer is A.

Exhibit 12.7 -Refer to Exhibit 12.7,which Shows a Backward-Bending Labor Supply Curve