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
In the topic of Supply of Labor in Perfect Competition, most labor economists believe that the market supply of labor curve is best described as:
A
Perfectly inelastic: the quantity of labor supplied does not change when the wage changes
B
Perfectly elastic: any wage above the reservation wage yields an infinite quantity of labor supplied
C
Downward sloping: a higher wage leads to a smaller quantity of labor supplied overall
D
Upward sloping: a higher wage leads to a larger quantity of labor supplied overall
Verified step by step guidance1
Understand the concept of the labor supply curve in a perfectly competitive labor market, which shows the relationship between the wage rate and the quantity of labor workers are willing to supply.
Recall that the reservation wage is the minimum wage at which a worker is willing to supply labor; wages above this level generally encourage more labor supply.
Analyze the options: a perfectly inelastic supply means quantity supplied does not change with wage, which is unrealistic for labor markets; perfectly elastic supply implies infinite labor at any wage above reservation wage, which is also unlikely; a downward sloping supply suggests higher wages reduce labor supply, which contradicts typical labor behavior.
Recognize that an upward sloping labor supply curve means that as wages increase, more individuals are willing to work or current workers supply more hours, reflecting the substitution effect dominating the income effect in labor supply decisions.
Conclude that the market supply of labor is best described as upward sloping because higher wages generally incentivize a greater quantity of labor supplied overall.
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