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Unformatted text preview: o If non-labor income, opportunity cost of leisure o If wage , leisure “more expensive” ↑ • If wage , 2 effects; ↑ o 1. Income effect (similar to non-labor income) more leisure (work less) o 2. Substitution effect- leisure expensive – less leisure (more work) o 3. Net effect= income effect+ substitution effect • If wage ↓ o 1. Inc. effect: work more o 2. Subst. effect: leisure cheaper: more leisure (work less) o 3. Net effect= income effect + substitution effect • Net effect of wage ↑: o More work? o Less work? o Work same? o Men aged 25-55: income effect + substitution effect are about the same size o w↓ > work full time • Labor supply curve o Labor- supply elast. = % ∆Ls/ % ∆wage o “backward-bending labor supply curve” o Elast. <0 o Inc. effect> subst. eff....
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This note was uploaded on 04/19/2011 for the course EC 201 taught by Professor Ballard during the Fall '08 term at University of Michigan.
- Fall '08