supply of labour

• what is the supply of labour?

  how many people are willing to work at a given wage rate
• what is the substitution effect ?

  • when workers want to increase number of working hours when wage rate increases
  • as workers start to receive higher wages they start to value work more than leisure time and they choose to work more hours as it gives greater income thus substituting wages for leisure time is not permissible
  • opportunity cost of taking leisure is wage
• what is the income effects ?

  • willingness of a worker to decrease number of working hours when wage rate increases
  • as worker start to earn more they get to a level where they can earn more by working less > this is due to skills and experience
  • furthermore they are at high wage they dont value working those extra hours as the opportunity cost of working is now favourable leisure time