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

Question

Quizplus · Accepted Answer

The backward-bending supply curve of labor illustrates that at high wages, the income effect (where individuals prefer more leisure to working more hours) outweighs the substitution effect (where individuals prefer working more hours due to higher wages), leading to a decrease in labor supplied, hence a negative slope.

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