Multiple Choice
Which of the following will cause an increase in the supply of labor in a perfectly competitive labor market?
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15. Markets for the Factors of Production
Supply of Labor in Perfect Competition
Multiple Choice
Which of the following will result in a decrease in the supply of labor in a perfectly competitive labor market?
A
An increase in workers' preference for leisure over work
B
A reduction in income taxes on labor earnings
C
An increase in the population of working-age individuals
D
A decrease in the wage rate offered by firms
Verified step by step guidance1
Understand that the supply of labor in a perfectly competitive labor market depends on workers' willingness to work at different wage rates, which is influenced by their preferences and external factors.
Analyze how an increase in workers' preference for leisure over work affects labor supply: since workers prefer more leisure, they are less willing to supply labor at any given wage, causing the labor supply curve to shift left (decrease).
Consider the effect of a reduction in income taxes on labor earnings: lower taxes increase the after-tax wage, making work more attractive and typically increasing labor supply (shift right).
Evaluate the impact of an increase in the population of working-age individuals: more potential workers generally increase the labor supply, shifting the supply curve to the right.
Examine how a decrease in the wage rate offered by firms affects labor supply: this causes movement along the labor supply curve (a decrease in quantity supplied), but does not shift the supply curve itself.
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