Author Question: Why does the labor supply curve eventually bend backwards? What will be an ideal ... (Read 27 times)

imowrer · **on:** Jun 29, 2018

Why does the labor supply curve eventually bend backwards?

What will be an ideal response?

Question 2

Assume that two countries are considering trading with each other for the first time. Also assume that one of the countries has an absolute disadvantage in producing everything compared to the other country.

How would it still be possible for these two nations to benefit from trade with each other?

JaynaD87 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The wage rate represents the opportunity cost of leisure. Starting from a relatively low wage, as the wage increases, leisure becomes more expensive and so workers substitute labor for leisure. As a result, a higher wage means less leisure and more labor and the supply curve is positively sloped. At a sufficiently high wage, however, the worker's income is high enough that, even though leisure has gone up in price, the worker can afford to buy more leisure by working less. So, at a high wage, the labor supply curve becomes negatively sloped.

Answer to Question 2

The reason that it would still be beneficial for each nation to trade with each other is because trade is not dependent on absolute advantage but rather comparative advantage. That means that one nation may be operating at an absolute disadvantage vis--vis another nation but still have a comparative advantage in at least one good or service.