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Unformatted text preview: ECON 100B Fall 2008 Discussion Section Notes Prepared by: Sung Bin Sohn ( [email protected] ) 9/10 and 9/11 Sections 1. Review of Lecture 4 1.1 Supply of Labor - Income-Leisure Trade-off : Each individual compares costs (loss of leisure) and benefits (more consumption) of one more unit of work. Each individual keeps providing additional unit of work as long as the benefit is greater than the cost. Aggregate supply of labor is sum of individuals’ labor supply. - Substitution Effect and Income Effect (in response to the changes in real wage rate) 1. Cases for Pure Effect (1) Temporary real wage change: Pure effect (2) Lump-sum transfer (e.g. winning the lottery): Pure effect 2. Cases for Combined Effects: long-term change in the real wage Quick Question) If there is a permanent increase in the real wage, does the labor supply increase or decrease? - Labor supply curve: Relationship between labor quantity supplied and real wage Ö In general, the substitution effect dominates the income effect....
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This note was uploaded on 09/23/2008 for the course ECON 200B taught by Professor Wood during the Fall '08 term at UBC.
- Fall '08