A backward-bending labor supply curve occurs when:
A) the substitution effect of a wage increase is greater than the income effect.
B) the income effect of a wage increase is greater than the substitution effect.
C) the substitution effect of a wage increase equals the income effect.
D) a negatively sloped labor supply curve is not possible.

Question

Quizplus · Accepted Answer

A backward-bending labor supply curve occurs when the income effect of a wage increase is greater than the substitution effect. This means that as wages increase beyond a certain point, individuals may choose to work less because they can maintain their desired standard of living with fewer hours worked, prioritizing leisure over additional income.

A Backward-Bending Labor Supply Curve Occurs When