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?

Show Answers

The income effect is nonexistentThe substitution effect is stronger than the income effectThe income effect dominates the substitution effectThe income and substitution effects are balancedNone of the above

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.