1 of 32

What’s the shape of Oprah’s supply curve?

2 of 32

CONSUMER

THEORY

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FIRMS

HOUSEHOLDS

PRODUCT

MARKETS

FACTOR

MARKETS

GOODS & SERVICES

EXPENDITURE

INCOME

FACTORS of

PRODUCTION

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FIRMS

HOUSEHOLDS

PRODUCT

MARKETS

FACTOR

MARKETS

GOODS & SERVICES

EXPENDITURE

INCOME

FACTORS of

PRODUCTION

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FIRMS

HOUSEHOLDS

GOODS & SERVICES

EXPENDITURE

FACTOR

MARKETS

LABOR

WAGES

PRODUCT

MARKETS

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LABOR

SUPPLY

THEORY

LABOR

SUPPLY

THEORY

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Hours

Wage rate ($’s/hr.)

upward-sloping�labor supply curve

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Hours

Wage rate ($’s/hr.)

downward-sloping�labor supply curve

9 of 32

upward-sloping�labor supply curve

Hours

Wage rate ($’s/hr.)

downward-sloping�labor supply curve

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Hours spent enjoying leisure

Income

Hours spent working

24

0

24*w

The labor-leisure �tradeoff

​

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Hours spent enjoying leisure

Income

24

0

24*w

Do you work more �if your wage rate goes up?�

Hours spent working

12 of 32

Hours spent enjoying leisure

Income

24

0

Do you work more �if your wage rate goes up?�Yes, if the substitution �effect dominates

Hours spent working

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Do you work more �if your wage rate goes up?�No, if the real-income�effect dominates

Hours spent enjoying leisure

Income

24

0

Hours spent working

14 of 32

upward-sloping�labor supply curve

Hours

Wage rate ($’s/hr.)

downward-sloping�labor supply curve

15 of 32

backward-bending�labor supply curve

Hours

Wage rate ($’s/hr.)

real-income�effect dominates

substitution�effect dominates

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What’s the shape of Oprah’s supply curve?

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(a.)

(b.)

(c.)

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Gary �Becker

Robert

Gordon

Daniel�Hamermesh

19 of 32

20 of 32

What’s the shape of Oprah’s supply curve?

21 of 32

Higher taxes for high-income earners?

22 of 32

POLICY APPLICATIONS

of

​

LABOR-SUPPLY THEORY

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#1. Unemployment compensation

​

#2. Disability compensation

​

#3. Welfare

​

#4. “Workfare”

​

#5. EITC

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Leisure

Income

35 hrs.

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POLICY APPLICATIONS

of

​

LABOR-SUPPLY THEORY

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PRODUCER

THEORY

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EC2010C | Tue. & Fri. | 13h45–15h05 | PL-1

PRINCIPLES of MICROECONOMICS

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The exceptions are as follows.

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is “Price-Tag” (http://thenounproject.com/term/price-tag/18095/) �by Atelier Iceberg from the Noun Project, used under a CC BY 3.0 license.

is “Factory” (http://thenounproject.com/term/factory/605/) �from the Noun Project. That work is in the public domain.

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The author does not make any claims to any of the photos.

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30 of 32

Hours spent enjoying leisure

Income

Hours spent working

24

0

24*w

The labor-leisure �tradeoff

​

31 of 32

Hours spent enjoying leisure

Income

24

0

Do you work more �if your wage rate goes up?�Yes, if the substitution �effect dominates

Hours spent working

32 of 32

Do you work more �if your wage rate goes up?�No, if the real-income�effect dominates

Hours spent enjoying leisure

Income

24

0

Hours spent working