Leisure is an attractive alternative to work and hence it is the opportunity cost at further hikes i

Leisure is an attractive alternative to work and hence it is the opportunity cost at further hikes i

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Leisure is an attractive alternative to work and hence it is the opportunity cost at further hikes in the wage rate. This has been shown in Figure 53. In the figure the number of hours of labor supplied have been measured along OX axis and the rate of wages along OY axis. When the initial wage rate is as low as W a worker supplies N hours of labor. With a rise in the rate of wages to W 1 he has an incentive to work longer and to earn a higher income. Therefore the worker offers more hours of labor (N1). The labor supply curve SS1 slopes upwards as is normally expected. Beyond W1 if the wage rises further as W2 the worker may withdraw some hours of labor. He may prefer more leisure than work. Therefore supply of labor drops to fewer hours as N2.
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Unformatted text preview: The supply curve S1S2 bends backward. This is the typical nature of the labor supply curve. This can be explained both with the help of income and substitution effects. Beyond point S 1 and wage rate W1 the worker feels that an adequate income has already been earned by him. Therefore beyond this point he prefers leisure to income. This is termed the negative income effect . Also, more work and more income, on the one hand, and more leisure, on the other, are substitutes of each other. About 10 or 12 hours of work leisure may be given up in preference to income but, beyond that, leisure is considered more valuable. Therefore it is substituted in place of work and income....
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