A backward-bending supply curve of labour shows that at relatively high wages,the _____ effect dominates the _____ effect,and the supply curve has a _____ slope.
A) income;substitution;positive
B) income;substitution;negative
C) substitution;income;positive
D) substitution;income;negative

Question

Quizplus · Accepted Answer

The backward-bending supply curve for labour shows that as wages increase, the substitution effect dominates and individuals are willing to work more as the opportunity cost of leisure time increases. However, at some point, the income effect takes over and workers are willing to work less as their income increases. This creates a negative slope in the supply curve, indicating that as wages continue to rise, the quantity of labour supplied decreases. The income effect dominates at relatively high wages, meaning that even though the opportunity cost of leisure time has increased, workers are still willing to reduce their work hours because their higher income provides them with greater purchasing power and the ability to enjoy more leisure time.

A Backward-Bending Supply Curve of Labour Shows That at Relatively