![]() Individual labor supply curves can be aggregated to derive the total labour supply of an economy. If, beyond a certain wage rate, the income effect is stronger than the substitution effect, then the labour supply curve bends backward. If the substitution effect is stronger than the income effect then the labour supply slopes upward. ![]() If leisure is a normal good-the demand for it increases as income increases-this increase in income tends to make workers supply less labour so they can "spend" the higher income on leisure (the " income effect"). However, also as the real wage rate rises, workers earn a higher income for a given number of hours. This tends to make workers supply more labour (the " substitution effect"). As, for example, the real wage rate rises, the opportunity cost of leisure increases. Consequently, there are two effects on the amount of labour supplied due to a change in the real wage rate. More hours worked earn higher incomes, but necessitate a cut in the amount of leisure that workers enjoy. ![]() Labour supply curves derive from the 'labour-leisure' trade-off. See also: Neoclassical microeconomic model of labour supply
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