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Labor Economics > Chapter 3: Labor Supply > Flashcards

Chapter 3: Labor Supply Flashcards

1
Q

is a market in which employers compete to hire workers and workers compete for jobs.

A

The labor market

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2
Q

consists of all individuals who are either employed or seeking employment in
a given area or industry.

A

The
labor supply side of the market

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3
Q

represents those individuals who are willing and able to work at different wage
rates

A

Labor Supply

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4
Q

also determines the unemployment rate.

A

The supply of labor

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5
Q

A
_______ supply can lead to higher unemployment rates, while a ______supply of labor can result in lower
unemployment rates.

A

higher, lower

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6
Q

is a key concept in labor economics that helps us analyze how workers make decisions about
how much labor they will supply to the market.

A

Labor supply

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7
Q

The key assumptions that underlie labor supply theory
include

A

rationality, fixed time, opportunity cost, fixed skills, perfect information, no market power and no
externalities.

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8
Q

refers to the amount of time that an individual is willing and able to work at a given wage rate
in a particular job or industry.

A

Labor supply

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9
Q

is a graphical representation that shows a positive relationship between wage rate
and the quantity of labor that workers are willing and able to offer.

A

The labor supply curve

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10
Q

is considered the most important
determinant of labor supply.

A

Wage rate

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11
Q

It refers to the amount of money that an employer is willing to pay a worker for
each unit of time worked, usually an hour.

A

Wage rate

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12
Q

An _________in the wage rate typically leads to an increase in the
quantity of labor supplied, while a ________in the wage rate leads to a decrease in the quantity of labor
supplied.

A

increase , decrease

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13
Q

represents the amount of labor that a single worker is willing and able to supply at
various wage rates.

A

Individual labor supply

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14
Q

It is the horizontal sum of the individual labor supply curves of all workers in that
market.

A

market labor supply curve.

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15
Q

the market labor supply curve is typically_______sloping, indicating that as the wage rate
increases, the quantity of labor supplied by workers in the market also increases.

A

upward

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16
Q

indicating that as the wage rate continues to
increase, workers begin to reduce the amount of labor they supply.

A

Backward Bending Labor Supply

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17
Q

Backward bending labor supply curve slopes from

A

left to right.

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18
Q

is the lowest wage rate at which an individual would be willing to supply labor or attract a person away
from leisure and into work.

A

Reservation
wage

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19
Q

The backward bending labor supply curve can occur for two possible reasons:

A

substitution effect and
income effect.

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20
Q

implies that as the wage rate increases, workers will substitute leisure
time with work time because they can earn more money per hour worked.

A

The substitution effect

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21
Q

suggests that when wages increase,
workers become wealthier and may choose to work fewer
hours because they can afford to

A

income effect

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22
Q

A ________of the labor supply curve represents an increase in the quantity of labor supplied at each
wage rate

A

rightward shift

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23
Q

A ________ of the labor supply curve represents a decrease in the quantity of labor
supplied.

A

leftward shift

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24
Q

Non Price determinants of labor supply

A

Wealth and other Income Sources.

Taste for Work.

Population and Labor Force Size.

Human capital.

Preferences and Social Norms.

Changes in Opportunities.

Migration Patterns.

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25
Q

The willingness to supply time to a labor market depends on income
from other sources, including prior savings, borrowing, family support, and similar sources.

A

Wealth and other Income Sources.

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26
Q

. As someone’s
wealth increases, they tend to work _______

A

less.

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27
Q

non-monetary factor, including factors like difficulty, working conditions,
and career advancement opportunities, significantly shapes labor supply.

A

Taste for Work.

28
Q

unpleasant or unsafe working
conditions, limited advancement prospects, and overly demanding jobs can discourage workers, leading to a
_________ labor supply for those positions.

A

decreased

29
Q

. A larger population tends to shift the labor supply curve ________as more workers are available at any
given wage; a smaller population tends to shift the labor supply curve ______

A

rightward , leftward.

30
Q

in the form of education, skills, training, and experience, makes workers more
productive and valuable to employers.

A

Human capital

31
Q

An increase in education and
training can shift the labor supply curve to the _______, as workers are able to supply more labor at each wage
rate due to their increased productivity

A

right

32
Q

Some individuals may have a strong desire or motivation to work, while others may prioritize leisure
or other non-work activities.

A

Personal Preferences and attitude

33
Q

if there is a cultural preference for leisure time, the labor supply curve may shift to the _____ as
individuals choose to work fewer hours.

A

left

34
Q

Traditionally, women have been expected to take on more childcare responsibilities, leading to decisions to
work part-time or stay at home altogether.

What determinant

A

Norms

35
Q

the availability of part-time or flexible work
arrangements, can affect the quantity of labor supplied at different wage rates

A

Changes in Opportunities

36
Q

If a new job opportunity
becomes available, it could shift the labor supply curve to the ____

A

right.

37
Q

When superior alternatives arise for workers in another labor market, the supply curve in the original labor market shifts _______ as workers move
to the new opportunities.

A

leftward

38
Q

An influx of workers in a region
can shift the labor supply curve to the ______, while outmigration can shift the labor supply curve to the ______

A

right, left.

39
Q

Emigration _______labor supply while immigration ______labor supply

A

decreases, increases

40
Q

Each member of a household must determine whether
to give up a certain number of hours each day to work. That decision is the individual’s labor supply decision
and is called______

A

the labor-leisure trade-off.

41
Q

determines how much income an individual earns per hour of work.

A

wage rate

42
Q

Individuals can use their time in three ways:

A

(1) undertake market work
(2) undertake nonmarket work
(3) spend time as leisure

43
Q

selling time in the labor market in
return for income;

A

undertake market work

44
Q

using time to produce their own goods and services

A

undertake nonmarket work

45
Q

all nonwork uses of their time.

A

spend time as leisure

46
Q

has often been defined as free time or time not spent at work.

A

Leisure

47
Q

It is the opportunity cost of wage.

A

Leisure

48
Q

When
wages increase, the opportunity cost of leisure _____

A

rises.

49
Q

refers to the overall satisfaction or well-being a person gets from both
work and leisure.

A

Utility

50
Q

The notion that workers derive satisfaction from consuming goods and leisure is represented
by the utility function:

A

U = f (C, L).

51
Q

transforms the person’s consumption of goods and
leisure into an index U that measures the individual’s level of satisfaction or happiness.

A

The utility function

52
Q

The higher the level of index U, the ________the person. It is assumed that buying more goods or having
more leisure hours both increase the person’s
utility

A

happier

53
Q

______ is locus points that illustrates
the combinations C and L that generate this
particular level of utility.

A

Indifference curve

54
Q

Indifference
curves have four important properties

A

Indifference curves are downward
sloping.
▪ Higher indifference curves indicate
higher levels of utility
▪ Indifference curves do not intersect.
▪ Indifference curves are convex to the
origin.

55
Q

The absolute value of the slope of an indifference curve, which is also called the

A

marginal rate of
substitution (MRS)

56
Q

. It represents the individual’s willingness
to trade consumption for additional leisure time

A

MRS

57
Q

defined as the change in utility resulting from an additional hour devoted to
leisure activities, holding constant the amount of goods consumed.

A

The marginal utility of leisure

58
Q

as the change in utility if the individual
consumes one more dollar’s worth of goods, holding constant the number of hours devoted to leisure
activities

A

marginal utility of consumption

59
Q

defines the worker’s
opportunity set, indicating all of the consumption– leisure combinations the worker can afford

A

The budget constraint

60
Q

the individual’s ability to consume goods and
leisure is limited by both their

A

available time and
income.

61
Q

A portion of their income, including
property income, dividends, and lottery prizes,
remains unaffected by the number of hours
worked, referred to as

A

“nonlabor income”

62
Q

Thus, the individual’s budget constraint can be
expressed as follows:

A

𝐶 = 𝑤ℎ + V

where consumption equals labor earning (wages × hours of work) plus nonlabor income (V).

63
Q

individuals choose consumption and leisure to

A

maximize utility.

64
Q

A utility-maximizing worker chooses the consumption-leisure bundle given by point P, where the
indifference curve is ________to the budget line

A

tangent

65
Q

the budget
line is tangent to the indifference
curve. In other words, the slope of
the indifference curve equals the
slope of the budget line. This implies
that

A

𝑀𝑈𝐿 /
𝑀𝑈𝐶
= w

Labor Economics (5 decks)

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