As shown in Figure 12.7 “The Substitution and Income Effects of a Wage Change”, the substitution effect of the wage change induces her to increase the quantity of labor she supplies; she substitutes s...As shown in Figure 12.7 “The Substitution and Income Effects of a Wage Change”, the substitution effect of the wage change induces her to increase the quantity of labor she supplies; she substitutes some of her leisure time for additional hours of work. The supply curve for labor will shift as a result of a change in worker preferences, a change in nonlabor income, a change in the prices of related goods and services, a change in population, or a change in expectations.
Now suppose the wage rises from W to W’. That reduces the marginal utility of $1 worth of leisure, MU Le /W, so that the extra utility of earning $1 will now be greater than the extra utility of $1 wo...Now suppose the wage rises from W to W’. That reduces the marginal utility of $1 worth of leisure, MU Le /W, so that the extra utility of earning $1 will now be greater than the extra utility of $1 worth of leisure: As shown in Figure 12.7 “The Substitution and Income Effects of a Wage Change”, the substitution effect of the wage change induces her to increase the quantity of labor she supplies; she substitutes some of her leisure time for additional hours of work.
