Chapter 13R, Problem 14MCQ

To determine

The correct option that defines the situation when supply curve for labor shift towards left.

Answer to Problem 14MCQ

Option a is correct.

Explanation of Solution

Explanation for correct option:

a.

Supply curve for labor will shift towards left when there is an increase in wealth. In other words, if the factor price increases the quantity of factor is reduced. This will result in shifting of supply curve towards left. Therefore, option a is correct.

Explanation for incorrect options:

b.

Labor starts enjoying leisure more instead of increasing working hours when wealth is increased. The wage rates even if are increased then supply curve shifts upward. Therefore, option b is incorrect.

c.

If wage rates are decreased due to income effect then the supply curve move downward. Therefore, option c is incorrect.

d.

Increase in wage rates due to substitution effect will result into upward movement of supply curve. Therefore, option d is incorrect.

e.

Decrease in wage rates due to substitution effect will result into downward movement of supply curve. 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.