The Labor Supply Curve Is Backward Bending Because

question 308

Multiple Choice

The labor supply curve is backward bending because

• A) as the wage rate rises, the substitution effect becomes larger than the income effect.
• B) as the wage rate rises, the income effect becomes larger than the substitution effect.
• C) an increase in the wage rate shifts the supply of labor curve leftward at higher wages.
• D) an increase in the wage rate shifts the supply of labor curve rightward at higher wages.

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Definitions:

Real Minimum Wage

The lowest legal hourly wage, adjusted for inflation, that employers can pay their workers.

Purchasing Power

The ability of an individual or group to buy goods and services with a given unit of currency or resources.

Real Wages

Wages adjusted for inflation, reflecting the actual purchasing power of income earned from work.

Two-Income Families

Households in which both partners earn wages or salaries contributing to the family's total income.