Question

Construct your Labor Supply curve: You should assume this is a fairly permanent job, so do your best to imagine your real decision-making process. On the horizontal axis is (for this question, use “quantity of hours per week” from zero to 100) and on the vertical axis, each wage (for this question, use “annual salary” from zero to $200,000 in increments of $10,000) . Estimate your actual labor supply curve for each salary point from $10,000 to $200,000 in increments of $10,000.

b. Explain the shape of your curve (upward sloping? Steep, flat?) and why you think it’s shaped that way.

c. Explain three events that would shift your labor supply curve.

Answer 1

(b) From above one can say that, in reality, the labour supply curve resembles more or less like a backward-bending supply curve, where the labour supply first increases with increase in income and subsequently decreases with further increase in income. It's shape is because of income and substitution effect. Initially substitution effect is dominant, but eventually income effect dominates.

(C) Assuming the standard upward sloping supply curve (to consider a shift) one can say that supply curve would shift in/out due increase/decrease in non-labour income, due to enrolling/derolling to an education institute, due to labour-augmenting/capital-augmenting technological change.