Explain why a single labor supply curve can have both a positive ...

[danielfitts88]

Explain why a single labor supply curve can have both a positive and negative elasticity.
 
  What will be an ideal response?

Question 2

What is the key idea of classical growth theory that leads to the dismal outcome?
 
  What will be an ideal response?

[hanadaa]

Answer to Question 1

The labor supply curve will have a positive elasticity when an increase in wages induces more people to enter the workforce. However, as wages rise workers become better off and may trade some labor for more leisure. At this higher wage level the elasticity of labor supply becomes negative as higher wages cause a reduction in the labor supply.

Answer to Question 2

The dismal outcome in classical theory is the conclusion that in the long run real GDP per person equals the subsistence level. In classical growth theory, an increase in real GDP per person causes population increases that return real GDP per person to the subsistence level. In the classical growth theory, an increase in income creates a population boom. The increase in population increases the supply of labor. Because of diminishing returns to labor, the increase in the supply of labor lowers the real wage rate and people's incomes. Eventually the real wage rate falls to equal the subsistence level, at which time the population stops growing.

[danielfitts88]

Thank you

[hanadaa]

No problemo