Summary
Summary substitution and income effects on the backward bending supply curve of labour
- Course
- Institution
substitution and income effects on the backward bending supply curve of labour
[Show more]
Seller
Follow
vedant1353
Content preview
substitution and income effects on thebackward bending supply curve of labour
As wage rates rise, at first, a person is willing to work
more, but at very high wage rates, they are not willing
to supply more of their time. This strange-looking supply
curve can be explained using the substitution and
income effects.
The substitution effect outweighs the income effect until
a certain point, at which the income effect dominates
and outweighs the substitution effect. The income effect
states that we have a target income level that will
provide us with the desired lifestyle. At very high
income levels, if our wage rate goes up, we will work
fewer hours and still earn the same target income,
allowing us to enjoy more leisure time.
The income effect creates this unusual supply curve.
However, both effects are constantly in play, with the
substitution effect dominating at lower wage rates and
the income effect dominating at higher income rates.
High earners can retire early, while those on lower
incomes must work until they receive their state
pension.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller vedant1353. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $12.39. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67474 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now