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With the help of a diagram, make a distinction between substitution effect and income effect on individual labour supply.
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- Q. 1 Analyze and graph the Product Effect and the Substitution Effect in labor demand in the face of an increase in labor price.What is marginal rate of technical substitution?Use a diagram to thoroughly explain the backward bending labor supply curve and explain what income and substitution effects are.
- When deriving labour supply, we assumed that the substitution effect dominated the income effect. What impact would there be on labour supply if this was not the case? Briefly investigate how such a change could theoretically affect the imposition of a minimum wage. (Your answer is likely to benefit if it is supported by a diagram.)Say whether you agree or disagree with this statement and explain your reason: “If the income effect of a wage change dominates the substitution effect for a given household, and the household works longer hours following a wage change, wages must have risen.”The lines on the graph are budget constraints, showing the tradeoff between labor and leisure. Suppose that when the wage changes, an individual chooses to move from point A to another point on the graph. For each of the other points, where would it belong on the backward bending labor supply curve? Backward‑bendingportionVerticalportionUpward‑slopingportion Answer Bank B D F C E
- 69. If the price of labor falls relative to the price of capital, and as a result the quantity of capital employed decreases, it can be concluded that: A. The substitution effect is greater than the output effectB. The output effect is greater than the substitution effectC. The income effect is greater than the output effectD. Labor cannot be easily substituted for capitalResources Submit All Question 21 of 30 <. The graph shows an individual labor supply curve. Use the graph to answer the questions. Between which two points on the graph does the income effect outweigh the substitution effect? Between points В B and C O A and C OD and E OC and E Quantity of labor Between which two points on the graph does the substitution effect outweigh the income effect? 8:2 46°F 12/1 a Wage ratePatrick has the following labour supply curve: WAGE RATE (Dollars per hour) W3 W2 W1 Labour Supply HOURS WORKED The substitution effect of a higher wage outweighs the income effect when wages are The substitution effect is the phenomenon that workers choose to work raise, because hours when they are given a
- What happens to hours of work when the wage rate falls? Decompose the change in hours of work into income and substitution effects.Explain in detail Discuss the possible substitution effect and the income effect of an increase in income on leisure time.How does the curvature of an isoquant relate to the marginal rate of technical substitution along an isoquant?
