If the wage rate increases and the income effect exactly offsets the substitution effect, the labor supply curve is vertical.

Question

Quizplus · Accepted Answer

When the income effect exactly offsets the substitution effect, it means that the individual's real income has remained constant despite the increase in wage rate. Therefore, there is no incentive to work more or less, resulting in a vertical labor supply curve.

If the Wage Rate Increases and the Income Effect Exactly