Answer to Question #222827 in Macroeconomics for Cebo

Question

Illustrate and examine how the individual supply of labor curve demonstrates the way an individual divides his/her time between work and leisure

Answer 1

Up to W1, the substitution effect is greater than the income effect, because higher wages causes makes individuals work more hours.

After W2, the income effect outweighs the substitution effect since people work fewer hours because their target income is achieved from a lower number of hours of work.