A Backward-Bending Supply Curve of Labor Shows That at Relatively

question 52

Multiple Choice

A backward-bending supply curve of labor shows that at relatively high wages the:

• A) income effect dominates the substitution effect, and the supply curve has a positive slope.
• B) income effect dominates the substitution effect, and the supply curve has a negative slope.
• C) substitution effect dominates the income effect, and the supply curve has a positive slope.
• D) substitution effect dominates the income effect, and the supply curve has a negative slope.

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Definitions:

Lower Labor

A reduction in the amount of labor used or required in a process or production.

Internal Rate

Often refers to the internal rate of return (IRR), which is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Operating Costs

Expenses associated with the day-to-day functioning of a business, such as rent, utilities, and payroll, excluding costs related to production.

Annual Cost

The total expenses associated with maintaining or operating something over the course of a year.