The Typical Labour Supply Curve Is Upward Sloping, but It

question 80

Multiple Choice

The typical labour supply curve is upward sloping, but it is possible for the curve to be backward bending-negatively sloped-at very high wage levels. Which of the following would cause a backward-bending supply curve?

• A) This would occur when the income effect from an increase in the wage becomes larger than the substitution effect.
• B) This would occur when the substitution effect from an increase in the wage becomes larger than the income effect.
• C) This would occur if leisure is an inferior good.
• D) This would occur when a large number of workers choose leisure rather than employment at low wages; only a very large increase in the wage will lead these workers to prefer employment to leisure.

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Definitions:

Forecasting Economic Variables

The process of making predictions about future economic activity based on historical and current data, using statistical models and analysis techniques.

Disinflation

Occurs when the rate of inflation declines.

Monetarist View

An economic theory which argues that management of the nation's money supply is the key to controlling inflation and other forms of economic instability.

Economic Stabilization

Efforts or policies aimed at maintaining economic growth, controlling inflation, and reducing unemployment to achieve a stable economy.