Answer to Question #278588 in Microeconomics for Rohit

Question

What causes a backward bending labour supply curve?

Answer 1

The workers labor supply choices are plotted as the supply curve of work hours offered. It is realized that, as wages increase, the curve tend to bend backwards and this is because the substitution effect dominates the income effect.

As real income increases beyond a given level, people substitute leisure with paid work time and thus the higher the wages the lower the labor supply translating to less labour hours being offered.