Question

1. Referring to the definitions in footnote 6, is the following stateme true, false, or uncertain? "Leisure must be an inferior good for an indi- vidual's labor supply curve to be backward-bending." Explain your answer.

Answer 1

Labor supply is backward bending if an increase in wage causes a fall in labor hours. It means a person works for lesser hours if you increase his/her wage. This is an outcome where Income effect from increase in wage overpowers the substitution effect.

Suppose leisure is an inferior good. Then an increase in wage(income) should lead to less consumption of leisure. It means an increase in wage should make a person work more. But that will not be a backward bending curve.

So, the statement is not true.