Backward-bending Labor Supply
An individual's labor supply curve will have an upward-sloping range and then eventually will start to bend backward.
Consider this question: When you get a pay raise, does the raise cause you to work more hours, or less hours? (With respect to this question, assume that you have the ability to choose how many hours you'd like to work.)
[Note: Refer to the graph below.]
The labor supply curve begins at point A with what's referred to as a "reservation wage" (i.e., the lowest wage you would be willing to give up your leisure time for). In the upward-sloping range, as the wage increases, the quantity of labor hours supplied also increases. (Digression: W and L are positively related here because the substitution effect between labor and leisure exceeds the income effect of the wage increase.)
However, at a particular wage (and this wage is different for different individuals), the income effect will dominate the substitution effect, and as the wage increases, the quantity of labor supplied will start to decrease. W and L are inversely related in this region because when the wage rises, the individual feels "richer", and chooses to work less, not more.
