Answer to Question #283713 in Macroeconomics for ABEX

Question

15. "The amount of labor supplied can be reduced when the real wage

increases." Do you agree? how?

Answer 1

I agree. A higher wage thus produces a positive substitution effect on labor supply. However, the higher wage has an income consequence. A greater wage indicates a higher income, and since leisure is a common good, demand for it will rise. As a result, the amount of labor available is reduced.