Question

Suppose that when wages are low, workers respond to wage increases by working more, but when wages are high, they respond to further wage increases by working less. What is this pattern of behaviour called? Select one: a. backward-bending labour-supply curve b. consumption as a Giffen good c. leisure as an inferior good d. consumption and leisure as perfect complements

Answer 1

It has been stated that initially as wages increases, the quantity of labor supplied also increases. However, as wages increases further and further, the worker respond by working less.

This implies that, initally, substitution effect of wage increase is greater than the income effect of wage increase and thus prompt worker to work more.

However, after a point, income effect of wage increase in greater than the substitution effect of the wage increase and thus prompt worker to work less.

So, the individual labor supply curve firs slopes upward and then bends backward.

Thus,

This pattern of behavior is called backward-bending labor-supply curve.

Hence, the correct answer is the option (a).