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Homework answers / question archive / A backward-bending labor supply curve occurs when a
A backward-bending labor supply curve occurs when
a. the substitution effect of a wage increase equals the income effect.
b. a negatively sloped labor supply curve is not possible.
c. the substitution effect of a wage increase is greater than the income effect.
d. the income effect of a wage increase is greater than the substitution effect.
d. the income effect of a wage increase is greater than the substitution effect.
Backward bending supply curve happens when the income effect is higher than substitution effects since more pay in the hand of workers urge them to spend it on relaxation i.e leisure as opposed to work so a rise in pay prompts workers to work less and recreation more so income effect, for this situation, will be higher than the substitution effects. When the income effect is greater than the substitution effect, labor supplied decreases with an increase in wages.