An increase in wages raises the opportunity cost of leisure and leads to an increase in the quantity supplied of labor.

Question

Quizplus · Accepted Answer

When wages increase, individuals are incentivized to work more because the opportunity cost of leisure has become relatively higher. This is due to the fact that the higher wage rate means that the foregone earnings from not working are higher, making leisure more expensive in terms of foregone income. As a result, there is an upward shift in the labor supply curve, indicating an increase in the quantity supplied of labor.

An Increase in Wages Raises the Opportunity Cost of Leisure