Which of the following best explains the backward bending portion of the labor supply curve?

Question

Quizplus · Accepted Answer

The backward bending portion of the labor supply curve occurs when the income effect of a wage increase dominates the substitution effect. Initially, as the wage rate rises, individuals are willing to supply more labor because the higher wage increases the opportunity cost of leisure. However, at a certain point, the income effect becomes stronger, and individuals are more likely to choose additional leisure time over more work hours, even if it means a lower income. This occurs because as income rises, the marginal utility of income decreases and the marginal utility of leisure time increases, leading to a decrease in the elasticity of the labor supply curve.

Which of the Following Best Explains the Backward Bending Portion