Question

Be thorough and concise. If possible, include a graphical explanation as well as verba True/False/Uncertain. You must provide a proof for your answer. (20 points) 1. The supply curve of labor may be upward sloping, downward sloping or both- it depends on the relative size of substitution and income effects. The demand curve for labor is derived from the marginal product of labor curve- the portion that is subject to increasing returns to labor, due to specialization and division of labor. 2. 3. If the cross-wage elasticity of demand is negative, the two inputs are said to be gross complements. The long run labor demand curve is more elastic than the short run demand curve because of the scale effect. 4.

Answer 1

1) True Labor supply curve can be upward or downward sloping(backward bending)

when substitution effect is greater than Income effect then labor supply curve is upward sloping

whereas when income effect is greater than income effect then labor supply curve is backward bending

2)False labor demand curve is MRPL curve which is always downward sloping

3)true

4)True becaus win short run only substitution effect works whereas in long run, both substitution and income effect works