3.5.2 Supply of Labour

Question 1

What choice do individuals have to make about supplying their labour?

Answer 1

Choice between work and leisure.

Question 2

What is the income effect?

Answer 2

Simples states that in the increase in income due to a rise in wages when an individual has a target income

Question 3

What is the substitution effect?

Answer 3

As wages rises, the opportunity cost of leisure time increases providing an incentive to work because one will be paid more.

Question 4

What is the individual supply curve called?

Answer 4

The backward bending supply curve

Question 5

At point A on the diagram, what is happening in terms of the income and substitution effect?

Answer 5

At point A, the income effect is positive because at low wage levels the individual needs to earn money to survive
The substitution effect is positive too because the opportunity cost of leisure is high, because hours worked is increasing along X axis

Question 6

At point B on the diagram, what is happening in terms of the income and substitution effect?

Answer 6

At point B, the substitution effect is positive as wages are really high so the opportunity cost of leisure is very high. The income effect has become negative, people have reached their target incomes so they tend to work less.

Question 7

What does the industry supply curve look like?

Answer 7

A linear sloping upward curve

Question 8

Give the analysis behind when an extension in the labour supply curve will lead to an increase in the quantity of workers?

Answer 8

A rise in the wage and an extension would lead to more workers as those with qualifications for higher skilled, higher paying jobs enter the market and it may attract those that are economically inactive into that particular market

Question 9

What two things can change the quantity of labour supplied WITHOUT a change in wage?

Answer 9

• a shift in the supply curve

- elasticity of the supply curve

Question 10

In firms that are operating in a perfectly competitive labour market, what does the supply of labour curve look like and why?

Answer 10

Workers in perfect competition are wage takers so they have no control over the wage they can get. Workers accept any wage they’re given therefore it is perfectly elastic.

Question 11

What is a monoposonist in the labour market?

Answer 11

When there is a sole buyer of labour, for example, Nurses and the NHS

Question 12

Explain the monoposony labour market supply curve with a diagram?

Answer 12

A monopsonist is the sole buyer of labour. They are wage makers and can hire a quantity of workers of their choosing. The AC curve is their labour supply curve but the MC curve is twice as steep because if the monopsonist raises the price for one worker, they have to raise it for every worker.

Question 13

What are the 4 factors that causes the supply of labour curve to shift?

Answer 13

1. wage on offer in substitute occupations
2. barriers to entry
3. improvements in occupational mobility of labour
4. size of working population

Question 14

How does the wage on offer in substitute locations shift the supply of labour curve?

Answer 14

If the wage in a substitute occupation is really high, workers will leave the original market for the higher wage, shifting the supply of labour curve to the left

Question 15

How do barriers to entry shift the supply of labour curve?

Answer 15

If minimum entry requirements, skills and qualifications are strict, the supply of labour curve will shift to the left

Question 16

How does an improvement in occupational mobility of labour shift the supply of labour curve?

Answer 16

An improvement in the occupational mobility of labour will shift the supply of labour curve to the right because more workers will have the skills/qualifications to enter the workforce. Or more just generally, a better educated workforce is one more likely to take work

Question 17

How does the size of the working population shift the supply of labour curve?

Answer 17

A larger working population (EU, immigration) will increase the supply of labour shifting it to the right. Immigration from elsewhere too.

Question 18

What is the elasticity of labour mean?

Answer 18

The sensitivity of labour supply following a change in the wage rate

Question 19

What are the 4 factors that affect the elasticity of supply of labour?

Answer 19

1. nature of the skills required
2. length of training period
3. vocation
4. time

Question 20

How does the nature of the skills required for the job affect the elasticity of the supply of labour?

Answer 20

If the nature of the skills required are really hard, elasticity of supply will be inelastic as not many people have the needed skills

Question 21

How does the length of training period affect the elasticity of the supply of labour?

Answer 21

If the length of training is really long, workers will find it difficult to flock into a new market following a rise in the wage rate

Question 22

How does the vocation affect the elasticity of the supply of labour?

Answer 22

Skilled vocations such as teaching and nursing, means a fall in wages will not lead to a fall in the supply of labour as many teachers do not teach for the money, only societal development. Non - monetary benefit

Question 23

How does time affect the elasticity of the supply of labour?

Answer 23

In the short run, any change in the wage will not lead to a big change in the quantity of labour as people need to hand in notices, move house e.c.t.