Backward Bending Supply Curve  

A typical supply curve shows an increase in supply as price rises. It slopes from left to right.

However, in labour markets we can often witness a backward bending supply curve.

Diagram of Backward Bending Supply Curve


The reason is that there are two effects related to determining supply.

The Substitution effect states that a higher wage makes work more attractive than leisure. Therefore, supply increases.

The income effect states that a higher wage means workers can achieve a target income by working less hours. Therefore, because it is easier to get enough money they work less.

When your wage is low, the substitution effect dominates. As wages increase, the income effect starts to dominate.



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