At low wage rates, will an increase in the wage rate most likely result in: the substitution effect Yes/No an increase in the supply of labor Yes/No what is the substitution effect here? thank you in advance
my two cents - 1) substitution effect - companies want to switch to using more non-labor (i.e. more efficient) production methods when wages increase. 2) supply of labor increases because who wouldn’t want to make more than he/she was making before?
that is correct, hiraj_a i just wanted to know whether there is something more behind the substitution effect
substitution effect: Yes supply of labor: Yes
I ahve a question here… How can supply change due to wage rate change… Shouldnt it be quantity supplied?
LRAS (and by a similar extrapolation) is affected by changes in the wage rate, technology, and resource prices only. hope that helps.
OK so basically inthe short run qunatity supplied changes and in the LR supply changes
smeet Wrote: ------------------------------------------------------- > I ahve a question here… How can supply change due > to wage rate change… Shouldnt it be quantity > supplied? I agree, I read this question in another thread a while back. Change in wages, much like change in price in a demand/supply curve, should only change quantity supplied which is a move along the curve, not shift it, so supply shouldn’t change. The substitution effect would be substituting leisure for work. At low wage rates substitution effect is greater than income effect, so you increase your work if wages increase.