LABOUR MARKET - INDIVIDUAL LABOUR SUPPLY CURVE - BACKWARDBENDING Flashcards
what key choice do indis have we focus on when deciding whether to supply labour or not
choice between working
or
use time for leisure purposes
in the key hcoice indi have one choice is
opportunity costs of anothe r
exaplin why in key choice indi have when deciding to supply labour one choice is opp cost of another
if decide to work i’m not enjoying leisure time
what are
Determinant of shape of ILSC
income effect
substittuion effect
Y effect can be
+ve and -ve
income effcet
as wages rise incomes rise at the same time but with potential of indi reaching target income
how do can Y effect be positive
respond wage rise by working more as we want to increase our income
explain how Y effect canbe negative q ( 2 points )
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
Substituion effect
as wages rise the opp cost of leisure time increases providing an incentive to work
subsitiution effcet is always
positive
explain why substitution effcet is logical
opp cost of LEISURE TIME increases as wgaes rise - you couldve earnt a100k instead of watching tt
what is on y axis
real wage
why is y axis real wage
individuals make decisions on how to use time based on real wage
X AXIS
number of hours worked
descirbe shape of ILSC
BACKWARD BENDING
We split ILSC into
3 sections
what happens within teh three sections
y and sub effect are differing in eahc
describe wages in 1st section
how do individuals respond
hows the opp cost of leisure time and substitution effect
are there any incentives
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
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
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
describe the Y and sub effc et adn what the wage effect is overall
+ve Y and sub effect
overall wage rate is +VE
in the 1 section with higher wages we see
greate rnumber of hours worked
Teh relationship is potiive
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
Real wages increasing even more
As real wages increase the oppo cost of leisure time increases too
So substitution effect remains positive
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
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
3rd section descirb curve
Curve back bends
in 3rd section describe the substitution effect
anf how is the opp cost of leisure now
Substitution effect is positive as wages get really high
The opp cost of leisure is massiv
in 3rd section how is the income effect and what assumption do we make
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
in 3 rd section describe inportance of leisure time
and why
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
in 3 rd section describe what happens to number of hours worked and why
So number of hours worked falls as higher wages can be earned to reach target income without having to work as hard
in 3rd section describe income effect
how this impact substitution effect
overall wage rate
So income effect is -ve
This doms sub effect
meaning overall wage effect is-ve
sum up what happens in 3rd section according to income , hours worked mention relevance to sub effect
So as wages increase here , # of hours worked decreases as income effect takes over
Leisure time become smore important with a target inoe reached
