Question 1

A backward bending labour supply curve indicates that

Accepted Answer

A backward bending labour supply curve indicates that as wages increase, individuals may choose to work less and consume more leisure time. This suggests that leisure is a normal good. The income effect of a wage increase, which leads to an increase in demand for leisure, outweighs the substitution effect of a wage increase, which leads to a decrease in demand for leisure. This is why the curve bends backwards. The other choices are not accurate explanations of a backward bending curve.

Question 2

If an indifference curve measuring the relationship between wage income and leisure becomes steeper this must mean

Accepted Answer

If the indifference curve becomes steeper, it means that the worker is willing to sacrifice more leisure time for each additional unit of wage income. This indicates that the worker places a higher value on wage income relative to leisure than previously.

Question 3

A non-linear budget constraint necessarily implies

Accepted Answer

A non-linear budget constraint refers to a situation where the slope of the constraint changes at some point. It does not necessarily imply any of the given options, as it can be caused by various factors such as changes in prices or preferences.

Question 4

Some employers may prefer overtime payments plus a lower standard wage to a higher standard wage producing the same wage costs because

Accepted Answer

By offering overtime pay instead of a higher standard wage, employers can incentivize workers to work longer hours, increasing output and productivity without having to hire additional employees. This allows them to utilize their existing workforce more intensively and potentially save on labor costs.

Question 5

An income preferrer is an individual who

Accepted Answer

An income preferrer is someone who would prefer to work more hours for the same amount of pay. This is different from someone who values their leisure time more and would prefer to work fewer hours for higher pay.

Question 6

Multiple job-holding can only occur when

Accepted Answer

Multiple job-holding usually occurs when earnings in the main job are too low and workers need to supplement their income with a second job.

Question 7

The neo-classical theory of labour supply assumes that

Accepted Answer

The neo-classical theory of labour supply assumes that the individual is faced with a simple choice between leisure and goods, which implies that the individual has a fixed amount of time and must allocate it between work and leisure. Option B is incorrect because the theory assumes that there are other sources of income, such as inheritance or interest on savings. Option C is incorrect because the theory assumes that hours of work are subject to a time constraint, as the individual only has a limited amount of time available. Option D is incorrect because the substitution effect does apply in the theory, meaning that individuals will substitute leisure for work as the wage rate increases, all else being equal.

Question 8

Absenteeism

Accepted Answer

The availability of sick-pay has been found to be positively related to absenteeism. This is because employees may feel they can take advantage of the sick-pay benefit and are more likely to call in sick even if they are not actually ill.

Quiz 2: The Labour Supply Curve