4 . Understanding the backward-bending labour supply curve Clancy has the following labour supply curve: WAGE RATE (Dollars per hour) LABOUR (Hours) Labour Supply W 3 W 2 W 1 The substitution effect of a higher wage outweighs the income effect when wages are . The substitution effect is the phenomenon that workers choose to work hours when they are given a raise, because .

\fLABOUR (Hours) between W3 and W1 between W2 and W, lower than W2 above Wi The substitution effect of a higher wage outweighs the income effect when wages aremore The substitution effect of a higher wage outweighs the income effect w s are V . ewer The substitution effect is the phenomenon that workers choose to work V hours when they are given a raise, because 7 they can afford to buy more leisure they can afford to buy Fess leisure the opportunity cost of leisure has risen eighs the income effect when wages are V - the opportunity cost of leisure has fallen _ _ at workers choose to work V hours when they are given a raise, because 7