A Backward-Bending Labor Supply Curve Implies That

question 77

Multiple Choice

A backward-bending labor supply curve implies that

• A) the substitution effect dominates the income effect at higher wage rates but not at lower wage rates.
• B) the substitution effect dominates the income effect at lower wage rates but not at higher wage rates.
• C) leisure is an inferior good.
• D) workers are irrational.

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Definitions:

Gross Pay

The total earnings of an employee for a payroll period.

FICA Taxes

Taxes required by the Federal Insurance Contributions Act, funding Social Security and Medicare, deducted from employees' paychecks and matched by employers.

Social Security

A government program providing economic assistance to persons with inadequate or no income, funded by taxes on workers and employers.

Medicare Benefits

Medicare benefits refer to the health care services covered under Medicare, a United States federal health insurance program for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant).