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 rises above $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 rises above $12,the substitution effect outweighs the income effect.

Quizplus · Accepted Answer

In the context of a backward-bending labor supply curve, when the wage rate rises above a certain point (in this case, $12), the income effect outweighs the substitution effect, leading individuals to work fewer hours despite higher wages, because they can maintain their desired standard of living with less work.

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