The Table below relates to the supply of labour in response to the given wage rates Use the information in the table to answer the questions that follow .
|
Wage rate ($ per hour) |
Hours worked (per day) |
Income per day (S) |
| 10 | – | 10 |
| 20 | – | 60 |
| 30 | – | 150 |
| 40 | 6 | – |
| 50 | 4 | – |
| 60 | 3 | – |
(a) Determine the number of hours of work per day if the wage rate is (i) $10 per day (ii) $20 per day (16) $30 per day
(b) Calculate the income per day when the wage rate is (i) $40 (ii) $50 (iii) 60
(c) (i) Which wage rate per hour attracts the highest earnings?
(ii) Name the type of supply curve that can be associated with the data in the table.
(iii) Explain the nature of the supply curve named in (c)(ii)
Explanation
Hours of work per day = \(\frac{Income}{wage rate}\)
(a)(i) \(\frac{$10}{$10}\) = 1 hour
(ii) \(\frac{$60}{$20}\) = 3 hours
(iii) \(\frac{$10}{$10}\) = 1 hour
income = per day = wage rate x hours worked
(b) (i) $40 x 6 hours = $ 240
$50 x 4 hours = $200
$60 x 2 hours = $120
(c) (i) $40 per hour
(ii) Backward Bending Supply Curve
(iii) As the wage rate increases from $10 to $40 per hour, the worker increases the number of hours worked from 1 hour to 6 hours a day. The supply curve over this stretch is quite normal as the worker substitues worl for leisure in response to higher wage rate offered. When the highest income is attained at the wage of the $40 the supply curve bends backwards towards the price axis as the labour market experiences the income effect. After that point, the worker puts in fewer hours and trades off extra pay for more leisure.