In each of the following scenarios, state whether the labor supply curve would shift to the...

In each of the following scenarios, state whether the labor supply curve would shift to the left, to the right, not shift at all, or if the shift is ambiguous because there is more than one effect and they would move the curve in opposite directions.

(a) The stock market rises sharply.

(b) Fewer teenagers work while in school than before.

(c) A large fraction of the population flees the country because of a bird flu epidemic.

(d) The expected future wage declines and the stock market crashes.

(e) The current real wage rate rises.

Expert Solution

a) The impact of rise in the stock market on labour supply is ambiguous because a boom in the stock market means people have gain wealth. Thus they will spend time on lesiure rather than working. So they will reduce the supply of labour. On the other hand, rise in the wealth attracts people to earn more so they will decide to supply labour. As a result, the clear impact is ambiguous.

b) In this case, supply of labour will fall as a result labour supply curve shifts leftwards. Since teenager has to allocate their time in between school and work so labour supply is reduced.

c) In this case supply of labour will fall. As people are leaving due to breakdown of epidemic so labour supply curve shifts leftward.

d) Decline in the future wages snd crashing of stock market lead to reduction in the supply of labour. People do not like a cut in the wages. In wake of cutting down wages, they decide not to work. Hence labour supply curve shifts leftwards.

e) Rise in the current real wage is positively related with supply of labour. Labour can postpone lesiure to get the benefit of rising wage rate. Thus supply of labour will increase and shift the curve rightwards.

Rahul Sunny answered 2 years ago

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