11. The backward-bending labor supply curve Caroline has 80 hours per week to de

Question

11. The backward-bending labor supply curve Caroline has 80 hours per week to devote to working or to leisure. She is paid an hourly wage and can work at her job as many hours a week as she likes The following graph illustrates Caroline's weekly income-leisure tradeoff. The three lines labeled BC, BC2, and BC3 illustrate her time allocation budget at three different wages; points A, B, and C show her optimal time allocation choices along each of these constraints The threelines labeled BC, BC, and BC, lustrate her time allcation

Explanation / Answer

Caroline's opportunity cost of leisure decreases and she chose to consume more leisure. In this region, Income effect dominates the substitution effect.

Point Wage Leisure Labor A 40 40 B 30 50 C 35 45

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