This preview shows page 1. Sign up to view the full content.
Unformatted text preview: NCREASE IN THE W AGE . The two panels of this figure show how a person might respond to an increase in the wage. The graphs on the left show the consumers initial budget constraint BC 1 and new budget constraint BC 2 , as well as the consumers optimal choices over consumption and leisure. The graphs on the right show the resulting labor supply curve. Because hours worked equal total hours available minus hours of leisure, any change in leisure implies an opposite change in the quantity of labor supplied. In panel (a), when the wage rises, consumption rises and leisure falls, resulting in a labor supply curve that slopes upward. In panel (b), when the wage rises, both consumption and leisure rise, resulting in a labor supply curve that slopes backward....
View Full Document
- Spring '10