If an individual's supply of labor curve is "backward bending," then

Question

Quizplus · Accepted Answer

In a backward bending supply curve of labor, the substitution effect dominates at low levels of wage rates because as the wage rate increases, the opportunity cost of leisure also goes up, causing individuals to substitute leisure with work. However, at higher levels of wage rates, the income effect takes over as an increase in wage rate increases the individual's income, and they may start to decrease their supply of labor as they opt for more leisure time. Hence, the substitution effect dominates in the first segment of the curve, whereas the income effect dominates in the second segment, making the answer C the correct choice.

If an Individual's Supply of Labor Curve Is "Backward Bending