Labour Market- SUPPLY Flashcards
What is the Trade-off between when workers are deciding on how much labour to Supply?
Trade-off between Work + Leisure
What is the Opportunity Cost of Working?
Leisure
What is the Opportunity of Leisure?
Consumption- Less work–> Less income
When do people work in regards to opportunity cost?
When wage covers their opportunity cost of leisure
Why is Labour Supply upward sloping?
As the Wage Rate Increases- Covers more of the Opportunity Cost–> More Labour Supplied
-Prepared to Substitute more Work for Leisure–> Leisure becomes more expensive
What effect makes Labour Supply Upward Sloping?
Substitution Effect- Sub. Work for Leisure
Why would Labour Supply be Downward Sloping?
As Wage Rate Increases- Income Increases–> Can afford more Leisure
-Do not need to work as much for similar income
What effect makes Labour Supply Downward sloping?
Income Effect
What are the axis labels for an Indifference Curve diagram to show the Labour Supply Decision + Work-Leisure Trade-off?
Consumption- y axis
Hours of Leisure- x axis
How is the Indifference Curve affected by an Increase in Wage Rate?
Relative Price Change–> Decreased Leisure + Increased Consumption- Substitution Effect
Change in Income–> Increased Consumption + (Slightly) Increased Leisure- Income Effect
When do you get a Backwards Labour Supply Curve?
When Leisure is Too Normal
When is an Individual’s Labour Supply Curve Upward sloping?
- Leisure is Inferior
- Leisure is Normal, but not Too Normal
Increased Income–> Not too much more extra Leisure is Demanded
When is an Individual’s Labour Supply Curve Downward sloping?
- Leisure is Very Normal
Increased Income–> Individual demands so much more Leisure- Decreased Labour
If Labour Supply is Downward Sloping/Backward Bending, how does a Tax Cut affect Labour?
Tax Cut–> Increased Income–> Decreased Labour Supply
Leisure is Too Normal- Increased Income is treated as a chance to enjoy more Leisure- Leisure is cheaper
