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- Income Inequalityeconomics-mcqs › income-inequality
- Published
- 1 Jun 2019
- Last updated
- 28 May 2026
If leisure is considered a normal good, what does it imply about the relationship between the income and substitution effects in a backward-bending labor supply curve?
Multiple choice question for Income Inequality. Select an option, then review the explanation below.
Explanation
When the labor supply curve bends backward, it indicates that the income effect exceeds the substitution effect. Since leisure is a normal good, as wages increase, the individual prefers more leisure time, reducing labor supply despite higher wages.
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- 5.What does a progressive income tax system imply about the tax rate for individuals with higher earnings?