What is the substitution effect of a wage increase? What is the income effect of a wage increase? Explain under what conditions the labor supply curve will be upward sloping and when it will be downward sloping
What will be an ideal response?
The substitution effect refers to the fact that an increase in wages raises the opportunity cost of leisure and causes workers to devote more time to working and less time to leisure activities. The income effect refers to the fact that an increase in wages increases workers' purchasing power and causes an increase in the quantity demanded of leisure, causing a reduction the quantity of labor supplied. The labor supply curve will be upward sloping when the substitution effect is greater than the income effect, so an increase in the real wage will increase the quantity of labor supplied, and will be downward sloping if the income effect is greater than the substitution effect, so an increase in the real wage will decrease the quantity of labor supplied.
You might also like to view...
In 2014, the average inflation rate in the OECD countries was
A) 1.7%. B) 2.3%. C) 5.2%. D) 3.8%. E) 10.5%.
A rent ceiling is
A) fair, because it helps all renters. B) fair, because it insures that low-income families can rent apartments. C) fair, because it helps all landlords. D) unfair. E) fair, because it helps more renters than it harms.
The text asserts that the allocation of resources among firms is efficient. What assumptions must hold for this to be true?
What will be an ideal response?
Which of the following most clearly illustrates the law of diminishing marginal utility?
a. The total satisfaction from consuming a good falls as more of the good is consumed. b. Marginal utility falls as total utility falls. c. The quantity of a good demanded falls as its price rises. d. The additional satisfaction from consuming a good falls as more of the good is consumed. e. There is a direct relationship between the price of a good and its total utility.