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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