Homework SourseFigure 203 57 Figure 203 shows a workers backwardbending su
Figure 20-3
____ 57. Figure 20-3 shows a worker\'s backward-bending supply curve of labor. Which of the following statements is correct?
a.
The substitution effect of a change in the wage dominates the income effect at all points on the curve.
b.
The income effect of a change in the wage dominates the substitution effect at all points on the curve.
c.
Above W*, the substitution effect of a change in the wage dominates the income effect; below W*, the income effect dominates the substitution effect.
d.
Above W*, the income effect of a change in the wage dominates the substitution effect; below W*, the substitution effect dominates the income effect.
| a. | The substitution effect of a change in the wage dominates the income effect at all points on the curve. |
| b. | The income effect of a change in the wage dominates the substitution effect at all points on the curve. |
| c. | Above W*, the substitution effect of a change in the wage dominates the income effect; below W*, the income effect dominates the substitution effect. |
| d. | Above W*, the income effect of a change in the wage dominates the substitution effect; below W*, the substitution effect dominates the income effect. |
Solution
From the diagram, above w* is the income effect and below w* is the wage effect. Therefore, the correct answer is Option d
