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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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This note was uploaded on 11/26/2011 for the course ECONOMIC ec 201 taught by Professor - during the Fall '10 term at Montgomery.
- Fall '10
- Opportunity Cost