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Supply of Labor in Perfect Competition definitions

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  • Supply of Labor
    Total hours individuals are willing to work at various wage rates, reflecting the trade-off between work and leisure.
  • Leisure
    All non-work activities, including relaxation, family time, and hobbies, valued as an alternative to working.
  • Reservation Wage
    Minimum pay required for someone to choose work over leisure, representing the lowest acceptable compensation.
  • Market Supply
    Aggregate quantity of labor offered by all individuals in the economy at different wage levels.
  • Individual Supply Curve
    Graph showing how one person's willingness to work changes as wages rise, possibly bending backward at high wages.
  • Substitution Effect
    Tendency to work more as wages increase, since the opportunity cost of leisure rises with higher earnings.
  • Income Effect
    Tendency to desire more leisure and work less as higher wages boost overall purchasing power.
  • Opportunity Cost
    Value of leisure time forgone when choosing to work, which increases as wages rise.
  • Backward-Bending Supply Curve
    Situation where higher wages eventually lead to less labor supplied, as leisure becomes more attractive.
  • Purchasing Power
    Ability to buy goods and services, which grows as wages increase, influencing the desire for leisure.
  • Normal Good
    Item for which demand rises as income increases; in this context, leisure is treated as one.
  • Labor Market Equilibrium
    Point where labor supplied equals labor demanded, determined by wage adjustments and individual choices.
  • Quantity Supplied
    Total hours of labor offered at a specific wage, rising with higher pay until the income effect dominates.