Answer to Question #303164 in Microeconomics for Kashish

Question

explain the backward bending supply curve of labour through the price effect method

Answer 1

A backward-bending labor supply curve, also known as a backward-bending labor supply curve, is a graphical device that depicts a situation in which people will substitute leisure for paid worktime as real wages rise above a certain level, resulting in a decrease in labor supply and thus less labor-time being offered for sale. Tracing out the labor supply choices in response to varied wages yields the individual labor supply curve, which links desired hours of work to wage rate. Until the wage equals the reservation wage, the labor supply is nil. The slope of the labor supply function for increased salaries is determined by the respective magnitudes of the income and substitution impacts. The substitution impact is bigger than the income effect, resulting in a price effect that is positive. As a result of the increase in the real wage rate, the number of hours worked will increase.