Final answer:
The labor supply curve is typically upward-sloping according to the law of supply, but the substitution effect is often balanced by an income effect, leading to a steeper or even partly downward-sloping curve at higher wages.
Step-by-step explanation:
The labor supply curve is typically upward-sloping under the law of supply, indicating that a higher price (in this case, real wages) will result in a greater quantity of labor supplied. However, this relationship is moderated by the income effect and the substitution effect. A partly downward-sloping labor supply curve suggests that the income effect, which causes individuals to desire more leisure as their income increases, is stronger than the substitution effect, where individuals substitute leisure for labor because labor has become more financially rewarding.
As real wages rise, workers may reach a level of satisfaction with their income that they prefer to spend additional time on leisure activities rather than work more hours, despite the financial incentive. This behavior results in a labor supply curve that might bend back on itself. Nonetheless, the standard view informs us that while higher wages do lead to more labor supply, the curve is fairly steep because the income effect nearly neutralizes the substitution effect. Factors such as changes in demographics, preferences, and societal norms will also affect the labor supply curve, causing it to shift.