Question

Consider an individual who must drive to his place of work. Assume that there are 16 available hours in the day, that his wage rate is $20 per hour, and that he has nonlabour income of $100 per day. The commute takes one hour each day and it costs $40 in expenses for the round trip. Using a work-eisure diagram, depict his labour supply choice, including his reservation wage. Analyze the impact of an increase in commuting costs on his participation and hours decision. Analyze the impact, first of an increase in commuting time from two to four hours per day, and, second, of an increase in driving expenses from $40 to $60 per round trip, keeing commuting time at two hours.

Answer 1

This question comes under the law of supply and specifically the exception to the law of supply.

there are some exceptional cases were supply tends to fall with rise in price or tends to rise with with the fall in price.Your question is simply denoted as BACKWARD BENDING OF LABOR SUPPLY CURVE.

Sometimes the in case of labor, wage rate rises, and supply of labor (i.e. number of hours of work) also rises. Then supply curve slopes upward and and supply of labor decreases because of further rise in labor's wage rate. and supply curve labor bends backward. Because he prefers means labor prefers leisure to work after receiving high amount of wages.

Please refer diagram for the clearence of this topic.

In this diagram, supply of labor given on X axis and wage rate shown on Y axis. In this diagram the labor's supply curve SAS' shows the backward bending. As wage rate rises upto OW₁ simultaneously the supply of labor also rises. After that wage rate rises to W₂ from W₁ the supply of labor falls from OM₁ to OM₂so the supply curve bends backward or say slopes backwardfrom point A to S'. this is because the labor prefers the leisure to work after receiving higher amount of wage rate.