Chapter 13R, Problem 13MCQ

To determine

The correct option that defines the situation when supply curve for labor goes down.

Answer to Problem 13MCQ

Option b is correct.

Explanation of Solution

Explanation for correct option:

b.

  

When income effect dominates the substitution effect then the supply curve for labor goes downward. This is because, when the wage rates increases then the quantity of labor in hours decreases as shown in the above graph. Therefore, option b is correct.

Explanation for incorrect options:

a.

Supply curve for labor represents the availability of the labor increases as the wage rates decreases. Substitution effect if dominates the income effect then the slope of curve moves upward. Therefore, option a is incorrect.

c.

When substitution effect and income effect becomes equal then there is no upward or downward slope. Therefore, option c is incorrect.

d.

Workers does not experience downfall in wealth if wage rates are increased. Therefore, option d is incorrect.

e.

If wage rates are very low then the quantity of labor increases due to which slope is upward instead of downward. Therefore, option e is incorrect.

Economics Concept Introduction

Factor of production: Factor of production refers to the components or the resources that are required for producing intangible or tangible products.

Factor income: Factor income refers to returns received by the producer for inserting each factor of production as an input.