The labour supply curve is backward- bending because
A) as the wage rate rises, the income effect becomes larger than the substitution effect.
B) an increase in the wage rate shifts the supply of labour curve leftward at higher wages.
C) an increase in the wage rate shifts the supply of labour curve rightward at higher wages.
D) as the wage rate rises, the substitution effect becomes larger than the income effect.

Question

Quizplus · Accepted Answer

The labour supply curve is backward-bending because, at higher wage rates, the income effect (where individuals choose more leisure over work because they can maintain the same standard of living with less work) outweighs the substitution effect (where work is substituted for leisure because of higher wages). This leads to a decrease in the quantity of labor supplied at higher wages.

The Labour Supply Curve Is Backward- Bending Because