Labor-leisure trade-off determine the supply of labor

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Reference no: EM13898645

How does the labor-leisure trade-off determine the supply of labor?

a. the supply of labor is no different than the supply of any other good or service in that it is primarily affected by productions costs. In the case of labor, the dominant productions cost is the cost incurred to acquire employable skills. The supply of labor is upward-sloping because higher wages are required to cover the expense of gaining more skills.

b. when an individual chooses an amount of leisure to consume, he is simultaneously choosing a quantity of labor to supply. Since leisure is a normal good, an increase in the wage induces more consumption of leisure and therefore a smaller quantity of labor supplied.

c. individuals typically trade off working versus leisure in an unplanned, unsystematic way. as a result, the supply of labor exhibits a bit of randomness, showing that higher wages sometimes increase the quantity of labor time supplies and sometimes decrease the quantity of labor time supplied.

d. an increase in the wage rate is an increase in the opportunity cost of leisure and can therefore be expected to reduce the amount of leisure one wishes to consume. choosing less leisure is equivalent to supplying more labor, thus yielding a positive relationship between the wage rate and amount of labor supplied.

Reference no: EM13898645

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