Theory question 102
Labour MarketSection A (answer one question only from this section)
The Table below relates to the supply of labour in response to the given wage rates. Use the information in the Table to answer the questions that follow.
Wage rate ($ per hour) | Hours worked (per day) | Income per day ($)
10 | — | 10
20 | — | 60
30 | — | 150
40 | 6 | —
50 | 4 | —
60 | 2 | —
(a) Determine the number of hours of work per day if the wage rate is (i) $10 per day; (ii) $20 per day; (iii) $30 per day.
(b) Calculate the income per day when the wage rate is (i) $40 (ii) $50 (iii) $60.
(c)(i) Which wage rate per hour attracts the highest earnings? (ii) Name the type of supply curve that can be associated with the data in the table (iii) Explain the nature of the supply curve named in 2(c)(ii).
Show the model answer
(a) Hours = income ÷ wage rate: (i) 10 ÷ 10 = 1 hour; (ii) 60 ÷ 20 = 3 hours; (iii) 150 ÷ 30 = 5 hours.
(b) Income = wage rate × hours: (i) 40 × 6 = $240; (ii) 50 × 4 = $200; (iii) 60 × 2 = $120.
(c)(i) $40 per hour (income $240 a day).
(ii) A backward-bending supply curve of labour.
(iii) From $10 to $40 an hour, hours worked rise (1 → 6) because the worker gives up leisure for the higher pay (substitution effect). Above $40, hours fall (6 → 2) because the worker can keep a high income with fewer hours and prefers more leisure (income effect). So the curve slopes upward at first and then bends back towards the wage (vertical) axis.
The table's 'per day' in (a) means the hourly wage rate.