Labour Supply Curve

Question 1

N^S(w) plots ______ vs ______, holding _____ and _____ constant

Answer 1

labour supply; real wage

pi - T; preferences

Question 2

For individual workers, slope of labor supply is unclear. Depends on _____ and _______

Answer 2

income and substitution effects

if income > sub, then increase in w will increase l and so decrease N^S
if income < sub, then increase in w will decrease l and so increase N^S

relationship bw income and sub depends on individual’s preferences

Question 3

For individual workers, labour supply curve may be _______

Answer 3

backward-bending

looks like > in graph because N’(w) is positive for low wages and N’(w) is negative for high wages. may also have kinks if there are fixed costs of work (eg commuting)

Question 4

Aggregate labour supply includes both _____ and ______ margins

Answer 4

intensive; extensive

smooths out kinks in individual supply curve

Question 5

Aggregate labour supply is _______-sloping

Answer 5

upward

Question 6

Intensive margin: For those _____, increase in wage has _____ and _____

Answer 6

already working; income; substitution effects

Question 7

Extensive margin: For some of those who were not working, increase in wage may induce them to _____. Always ________ in w.

Answer 7

supply labour; increasing

Question 8

Labour supply curve plots _____ on y-axis and ____ on x-axis

Answer 8

real wage (w); employment (N)

Question 9

When pi - T increases, labour supply at each wage ____ and the labour supply curve shifts ____

Answer 9

decrease; left

Question 10

When pi - T decreases, labour supply at each wage ____ and the labour supply curve shifts ____

Answer 10

increases; right

pi - T has positive income effect
pi - T decreases –> income decrease –> work more

Question 11

What happens to labour supply curve when w increases?

Answer 11

Upward movement along the curve