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

Question

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 imultaneously 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 soetimes decrease the quantity of labor time supplied.

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

Explanation / Answer

The supply of labor is a positive relationship between wage rate and hours of labor supplied. In a perticular time period there is fixed number of hours. More labor hour means less leisure houres and vice versa. When the labor choses to spend an hour in leisure, she forgoes the wage she could have earn in thet hour. Therefore, wage rate is the oppertunity cost of leisure. The more leisure choses the higher the cost and the more the wage the higher the cost. A rational consumer will decrease the consumption of leisure as price of leisure (the oppertunity cost) increases. This implies as wage rate increases the labo will supply more labor and consume less leisure. This will give the labor supply curve a upward sloping shape.

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