Assuming that leisure is a normal good. if an individual's labour supply curve is backward bending then the ?
Correct answer: C. income effect outweighs the substitution effect
- A. income effect is zero
- B. substitution effect outweighs the income effect
- C. income effect outweighs the substitution effect
- D. income effect and the substitution effects are equal
Explanation
A backward-bending labour-supply curve means that a wage increase reduces hours worked. With leisure as a normal good, the positive income effect on leisure outweighs the substitution effect that would otherwise encourage work.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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