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    Question

    Backward bending labor supply curve is because

    of
    A Substitution Effect greater than Income Effect Correct Answer Incorrect Answer
    B Income Effect greater than Substitution Effect Correct Answer Incorrect Answer
    C Substitution Effect equal to Income Effect Correct Answer Incorrect Answer
    D Either b) or c) Correct Answer Incorrect Answer

    Solution

    In case of Backward bending supply curve, higher wages can lead to a decline in labour supply. This occurs when higher wages encourage workers to work less and enjoy more leisure time. This is a case where Income effect outweighs the substitution effect

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