Asked by David Lindsey on Jul 03, 2024
Verified
A rational person can have a negatively-sloped labor supply curve.
Labor Supply Curve
is a graphical representation showing the relationship between the amount of labor workers are willing to supply and the wage rate.
- Understand the relationship between wage changes and labor supply decisions in the work-leisure model.
Verified Answer
JB
Jordan BernsteinJul 07, 2024
Final Answer :
True
Explanation :
A rational person can have a negatively-sloped labor supply curve due to the income and substitution effects. Initially, as wages increase, the substitution effect may dominate, leading the individual to work more (supply more labor) in place of leisure. However, after reaching a certain income level, the income effect can dominate, where the individual values leisure more than the additional income from working extra hours, thus choosing to work less as wages increase further. This results in a negatively-sloped portion of the labor supply curve.
Learning Objectives
- Understand the relationship between wage changes and labor supply decisions in the work-leisure model.