The figure given below 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.

Figure 12.5

Question

The figure given below 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.
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Figure 12.5
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Quizplus · Accepted Answer

The backward-bending labor supply curve implies that as the wage rate increases beyond a certain point, individuals may actually choose to supply less labor because the income effect (i.e. leisure becomes relatively more valuable) outweighs the substitution effect (i.e. working becomes relatively more attractive). Therefore, when the wage rate increases from $9 to $12, the substitution effect would have to be stronger than the income effect in order for the individual to supply more labor. We are told in the question stem that the opposite is true, so the answer is A (True).

The Figure Given Below Shows a Backward-Bending Labor Supply Curve