In Order for There to Be a Backward-Bending Supply of Labor

question 36

Multiple Choice

In order for there to be a backward-bending supply of labor curve, it must be the case that

• A) at low wage rates, the income effect of a wage increase exceeds the substitution effect, but at high wage rates the substitution effect of a wage increase exceeds the income effect.
• B) at low wage rates, the substitution effect of a wage increase exceeds the income effect, but at high wage rates the income effect of a wage increase exceeds the substitution effect.
• C) the income effect of a wage increase exceeds the substitution effect at all wage rates.
• D) the substitution effect of a wage increase exceeds the income effect at all wage rates.

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Definitions:

Cash Balance

The amount of cash held in a company's bank account and on hand at any given time.

Dividends Declared

Profits distributed by a company to its shareholders out of its earnings, based on the number of shares owned.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions paid to shareholders, often reinvested in the business or kept as a reserve.