Question

Explain why most market labour supply curve slope upwards and to the right, even though individual labour supply curves are presumed to be a backward-bending. How does the height of a market labour supply curve relate to the concept of the opportunity cost?

Answer 1

Most labor supply curves slope upwards instead of being backward bending. This is because when workers reach a partucular higher level of wage rate or income, the other factors such as prestige, luxury and enjoyment in working more and more become very dominant.

Now, the labor supply curve is drawn backward bending as it is assumed that after a certain level of income, people start prefering leisure to working more if their wage rates rise above that particular level.

However, this is not true in real life. The other factors discussed above become dominant at higher levels pf income and thus the opportunity cost of enjoying leisure rises. Due to this, the labor supply curve comes out to be upward sloping implying that people will work more as the wage rate rises.