Chapter 3: Labor Supply

Question 1

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

Answer 1

The labor market

Question 2

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

Answer 2

The
labor supply side of the market

Question 3

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

Answer 3

Labor Supply

Question 4

also determines the unemployment rate.

Answer 4

The supply of labor

Question 5

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

Answer 5

higher, lower

Question 6

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.

Answer 6

Labor supply

Question 7

The key assumptions that underlie labor supply theory
include

Answer 7

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

Question 8

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.

Answer 8

Labor supply

Question 9

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.

Answer 9

The labor supply curve

Question 10

is considered the most important
determinant of labor supply.

Answer 10

Wage rate

Question 11

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.

Answer 11

Wage rate

Question 12

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.

Answer 12

increase , decrease

Question 13

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

Answer 13

Individual labor supply

Question 14

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

Answer 14

market labor supply curve.

Question 15

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.

Answer 15

upward

Question 16

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

Answer 16

Backward Bending Labor Supply

Question 17

Backward bending labor supply curve slopes from

Answer 17

left to right.

Question 18

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.

Answer 18

Reservation
wage

Question 19

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

Answer 19

substitution effect and
income effect.

Question 20

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

Answer 20

The substitution effect

Question 21

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

Answer 21

income effect

Question 22

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

Answer 22

rightward shift

Question 23

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

Answer 23

leftward shift

Question 24

Non Price determinants of labor supply

Answer 24

Wealth and other Income Sources.

Taste for Work.

Population and Labor Force Size.

Human capital.

Preferences and Social Norms.

Changes in Opportunities.

Migration Patterns.

Question 25

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

Answer 25

Wealth and other Income Sources.

Question 26

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

Answer 26

less.

Question 27

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

Answer 27

Taste for Work.

Question 28

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

Answer 28

decreased

Question 29

. 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 ______

Answer 29

rightward , leftward.

Question 30

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

Answer 30

Human capital

Question 31

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

Answer 31

right

Question 32

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

Answer 32

Personal Preferences and attitude

Question 33

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

Answer 33

left

Question 34

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

Answer 34

Norms

Question 35

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

Answer 35

Changes in Opportunities

Question 36

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

Answer 36

right.

Question 37

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.

Answer 37

leftward

Question 38

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 ______

Answer 38

right, left.

Question 39

Emigration _______labor supply while immigration ______labor supply

Answer 39

decreases, increases

Question 40

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______

Answer 40

the labor-leisure trade-off.

Question 41

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

Answer 41

wage rate

Question 42

Individuals can use their time in three ways:

Answer 42

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

Question 43

selling time in the labor market in return for income;

Answer 43

undertake market work

Question 44

using time to produce their own goods and services

Answer 44

undertake nonmarket work

Question 45

all nonwork uses of their time.

Answer 45

spend time as leisure

Question 46

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

Answer 46

Leisure

Question 47

It is the opportunity cost of wage.

Answer 47

Leisure

Question 48

When wages increase, the opportunity cost of leisure _____

Answer 48

rises.

Question 49

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

Answer 49

Utility

Question 50

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

Answer 50

U = f (C, L).

Question 51

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

Answer 51

The utility function

Question 52

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

Answer 52

happier

Question 53

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

Answer 53

Indifference curve

Question 54

Indifference curves have four important properties

Answer 54

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.

Question 55

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

Answer 55

marginal rate of substitution (MRS)

Question 56

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

Answer 56

MRS

Question 57

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

Answer 57

The marginal utility of leisure

Question 58

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

Answer 58

marginal utility of consumption

Question 59

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

Answer 59

The budget constraint

Question 60

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

Answer 60

available time and income.

Question 61

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

Answer 61

"nonlabor income"

Question 62

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

Answer 62

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

Question 63

individuals choose consumption and leisure to

Answer 63

maximize utility.

Question 64

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

Answer 64

tangent

Question 65

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

Answer 65

𝑀𝑈𝐿 / 𝑀𝑈𝐶 = w