Statement I: According to the theory of the backward-bending labor supply curve,the substitution effect and the income effect work in opposite directions.
Statement II: The theory of the backward-bending labor supply curve has no validity in real life because it assumes that money is the only factor that motivates us to work.

Question

Quizplus · Accepted Answer

Statement I is true because the substitution effect leads to a higher quantity of labor supplied, while the income effect leads to a lower quantity of labor supplied, as wages increase. Statement II is false because the theory of the backward-bending labor supply curve considers other factors such as leisure time, job preferences, and non-monetary benefits. However, it does emphasize the significance of wages in determining labor supply.

Statement I: According to the Theory of the Backward-Bending Labor