Labour supply

Question 1

Budget constraint equation

Answer 1

c= w x (T-L) + v

Question 2

Reservation wage

Answer 2

individuals are indifferent about supplying first unit of labour and not working

Question 3

Substitution effect

Answer 3

As wage rate increases
Opportunity cost of pleasure time rises
More hours are worked vs. spent on lesiure

Question 4

Income effect

Answer 4

Income rises
Demand for leisure increases (as normal good)
Demand for labour hours decreases