The backward-bending labor supply curve has its shape because,at
A) low wages,the income effect dominates the substitution effect,but the reverse occurs at high wages.
B) high wages,the substitution effect dominates the income effect,but the reverse occurs at low wages.
C) low wages,the substitution effect dominates the income effect,but the reverse occurs at high wages.
D) all wages,the income effect dominates the substitution effect.
E) all wages,the substitution effect dominates the income effect.

Question

Quizplus · Accepted Answer

The backward-bending labor supply curve has its shape because at low wages, the substitution effect dominates the income effect, but the reverse occurs at high wages. This means that at low wages, individuals work more as wages increase because they need the additional income, but at high wages, individuals work less as wages increase because they have a higher opportunity cost of leisure. Therefore, the labor supply curve bends backward as it crosses the vertical axis.

The Backward-Bending Labor Supply Curve Has Its Shape Because,at