5.4 Deriving Labor Supply Curves

So far, we’ve used consumer theory to examine consumers’ demand behavior. Perhaps surprisingly, we can also apply the consumer theory model to derive a person’s supply curve of labor. We start by using consumer theory to obtain the person’s demand curve for leisure time. Then, we use that demand curve to derive the supply curve, which shows the hours the individual wants to work as a function of the wage. We then use our labor supply model to analyze how a change in the income tax rate affects the supply of labor and the revenue that the government collects.

Labor-Leisure Choice

The human race faces a cruel choice: work or daytime television.

People choose between working to earn money to buy goods and services ...

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