Question

22. Explain how a market supply curve for labor is obtained as a sum of individual supply curves. Explain why the supply of labor is most likely upward sloping even though some individuals display downward sloping, backward bending or vertical supply curves?

Answer 1

Ans.

- Supply of labor is most likely upward sloping even though some individuals display downward sloping, backward bending or vertical supply curves because of the income and substitution effect.

- Over some scope of labor hours provided, the substitution effect will overwhelm. Since the minimal utility of relaxation is moderately low when little labor is provided (that is, when most time is given to recreation), it takes just a little increment in wages to actuate the person to substitute more labor for less recreation.

- Further, in light of the fact that couple of hours are worked, the income effect of those wage changes will be little.

- It is conceivable that past some wage rate, the negative income effect of a wage increment could simply balance the positive substitution effect; over that go, a higher wage would have no effect on the amount of labor provided.

- That chance is shown between focuses B and C on the flexibly curve

- A Backward-Bending Supply Curve for Labor supply curve is vertical.

- As wages keep on rising, the income effect turns out to be much more grounded, and extra increments in the wage diminish the amount of labor she supplies.

- The gracefully curve delineated here twists in reverse past point and accordingly accepts a negative slope.

- The flexibly curve for labor would thus be able to slope upward over aspect of its range, gotten vertical, and afterward twist in reverse as the income effect of higher wages starts to overwhelm the substitution effect.