Monday
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 7 Topics for Further Study Chapter 21 of 36 The Theory of Consumer Choice Section 21 of 26 … Sally's decision between leisure and consumption determines her supply of labor. This is because the more leisure time she takes the less time she has left to work to make more money to pay for more consumption. … In panels (a) and (b) the right graph shows the labor-supply curve resulting from Sally's decision. In panel (a) a higher wage · induces Sally to work more and enjoy less leisure · the labor-supply curve slopes upward In panel (b), a higher wage · induces Sally to enjoy more leisure and work less · the labor-supply curve slopes downward … At first, the backward-sloping labor-supply curve may seem puzzling Why would a person respond to a higher wage by working less? The answer comes from considering the income and substitution effects of a higher wage. The substitution effect When Sally's wag...