Suppose that the minimum wage has been increase from $7 to $10, for people who are affected, what...

Question:

Suppose that the minimum wage has been increase from $7 to $10, for people who are affected, what type of people will increase their hours of work and what type of people will decrease their hours of work? (Think about income & substitution effects.)

Wage Increase and Labor Supply:

When there is an increase in wage, the labor supply decision by rational individuals incorporate two effects: income effect and substitution effect. Income effect will predict lower labor supply while the substitution effect will predict higher labor supply.

Answer and Explanation: 1

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When there is wage increase, the income effect argues that individuals will consume more leisure as income is higher now. Hence, hours of work will...

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Understanding Shifts in Labor Supply and Labor Demand

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Chapter 7 / Lesson 4
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Learn about the labor supply and demand curves in economics. Explore the labor supply and demand curve shifts, and study the factors that impact both curves.


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