3-8 - I. Labor Supply continued A. Individual, Market, and...

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I. Labor Supply continued A. Individual, Market, and Aggregate Supply curves Individual Labor Supply Wage Income effect > Substitution effect S Q of Labor Wage S Substitution effect > Income effect Q of Labor One Market Wage S Avg wage Q of Labor
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Aggregate (National Labor Supply) Wage Supply holding constant other prices Q of Labor A. Meals from homegrown produce B. “ ” store bought produce C. “ ” restaurant bought produce Time Cash $1.00 wage $5.00 A = .25 4 hrs $4.25 $ 20.25 B = $4.00 2 hrs $ 6.00 $ 14.00 C = $11.00 ½ hrs $ 11.50 $ 13.50 Changes in wage alter the price of time and this relative price of goods If time is cheap, gardening is the best choice. If time’s expensive. Restaurant bought goods are cheaper Added worker effect: When D for Labor falls during a recession, the LF participation rate of secondary workers (students, wives, older people) increases, causing the labor force to grow Expands labor force Discouraged worker effect:
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3-8 - I. Labor Supply continued A. Individual, Market, and...

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