LABOUR MARKET - INDIVIDUAL LABOUR SUPPLY CURVE - BACKWARDBENDING

Question 1

what key choice do indis have we focus on when deciding whether to supply labour or not

Answer 1

choice between working

or

use time for leisure purposes

Question 2

in the key hcoice indi have one choice is

Answer 2

opportunity costs of anothe r

Question 3

exaplin why in key choice indi have when deciding to supply labour one choice is opp cost of another

Answer 3

if decide to work i’m not enjoying leisure time

Question 4

what are
Determinant of shape of ILSC

Answer 4

income effect
substittuion effect

Question 5

Y effect can be

Answer 5

+ve and -ve

Question 6

income effcet

Answer 6

as wages rise incomes rise at the same time but with potential of indi reaching target income

Question 7

how do can Y effect be positive

Answer 7

respond wage rise by working more as we want to increase our income

Question 8

explain how Y effect canbe negative q ( 2 points )

Answer 8

as wages rise we decide to work less because we have a target income

,if we have a target income and wages rise we can work less in order to reach our target income

Question 9

Substituion effect

Answer 9

as wages rise the opp cost of leisure time increases providing an incentive to work

Question 10

subsitiution effcet is always

Answer 10

positive

Question 11

explain why substitution effcet is logical

Answer 11

opp cost of LEISURE TIME increases as wgaes rise - you couldve earnt a100k instead of watching tt

Question 12

what is on y axis

Answer 12

real wage

Question 13

why is y axis real wage

Answer 13

individuals make decisions on how to use time based on real wage

Question 14

X AXIS

Answer 14

number of hours worked

Question 15

descirbe shape of ILSC

Answer 15

BACKWARD BENDING

Question 16

We split ILSC into

Answer 16

3 sections

Question 17

what happens within teh three sections

Answer 17

y and sub effect are differing in eahc

Question 18

describe wages in 1st section
how do individuals respond

hows the opp cost of leisure time and substitution effect

are there any incentives

Answer 18

Wages increasing but they’re at very low rates

so here indi respond by working more

the opp cost of leisure time is increasing so substitution effect is +ve

So there’s an incentive ot work

Question 19

decribe income effect in 3rd section

how do are indi responding

why do they respond like this

overall how do they respond and what do they get

Answer 19

Income effect is also positive here, at relatively low wage

indi respond by working ,

they have to work to get to certina level of income to live well

So individuals repsons by working more and collecting higher incomes

Question 20

describe the Y and sub effc et adn what the wage effect is overall

Answer 20

+ve Y and sub effect

overall wage rate is +VE

Question 21

in the 1 section with higher wages we see

Answer 21

greate rnumber of hours worked
Teh relationship is potiive

Question 22

2nd section how are real wages increasing

what happens if the real wage is increaseing in terms of leisure time

and what does this mean for substitution effect

Answer 22

Real wages increasing even more
As real wages increase the oppo cost of leisure time increases too
So substitution effect remains positive

Question 23

in the 2nd section describe how the nubers of hours worked are and how an individual respons and why

describe rate at which the hours being worked are changing

and what this suggests

describe inome effect and how this impacts subsituton effect

so what is the overall wage effect

Answer 23

Number of hours worked are increasing

so indi responding generally by working more to earn higher incomes

But rate at which hours worked are increasing is slwong down

Suggesting indi reaching target income

So income effect becoming negative but not enough to outweigh substitution effect

So overall wage effect still +Ve

Question 24

3rd section descirb curve

Answer 24

Curve back bends

Question 25

in 3rd section describe the substitution effect

anf how is the opp cost of leisure now

Answer 25

Substitution effect is positive as wages get really high
The opp cost of leisure is massiv

Question 26

in 3rd section how is the income effect and what assumption do we make

Answer 26

But income effect has become negative

because we make assumption at this point indi have reached their target income ,

their not willing to with higher wages to work more and sacrifice even more leisure time

Question 27

in 3 rd section describe inportance of leisure time

and why

Answer 27

leisure time becomes quite important for indi

Theyve reached Target Y their satisfiedwith

and with such higher wages think

I dont need to work as much to reach target income ,
As wages have increased lots so i can work less and still achieve target income

Question 28

in 3 rd section describe what happens to number of hours worked and why

Answer 28

So number of hours worked falls as higher wages can be earned to reach target income without having to work as hard

Question 29

in 3rd section describe income effect

how this impact substitution effect

overall wage rate

Answer 29

So income effect is -ve

This doms sub effect

meaning overall wage effect is-ve

Question 30

sum up what happens in 3rd section according to income , hours worked mention relevance to sub effect

Answer 30

So as wages increase here , # of hours worked decreases as income effect takes over
Leisure time become smore important with a target inoe reached