Labor Supply and the Dutch Economy

Wrong! - An upward-sloping and a downward-sloping labor supply curve imply that workers always increase and decrease labor hours, respectively, when the wage rate rises. In the Netherlands, at high wages, workers decrease labor hours when wages rise, so the curve is not forward bending.

Wrong! - The substitution effect increases labor hours and decreases leisure hours as the wage rate rises. It results in a movement along the upward sloping portion of the labor supply curve. It does not shift the curve.

Wrong! - The income effect increases, not decreases, leisure hours as the wage rate rises. It results in a movement along the backward-bending portion of the labor supply curve. It does not shift the curve.

Wrong! - If leisure were an inferior good, the Dutch would choose less leisure as income rises. Leisure is not a club good. It is rival because one person’s leisure time cannot be consumed by another. Leisure is not a public good. It is rival and excludable.