What happens when individual labor supply increases as wage rates rise?

What happens when individual labor supply increases as wage rates rise?

• A. Labor demand decreases
• B. Labor supply decreases
• C. Labor supply increases
• D. Wage rates become irrelevant

Answer: (C)

When wage rates rise, individuals are incentivized to offer more labor hours or enter the labor market, leading to an increase in the overall labor supply. This is because higher wages signal to workers that their effort is rewarded with better pay, attracting both current workers who may choose to work more hours and potential workers who might decide it's worthwhile to seek employment. This positive correlation between wage rates and labor supply reflects the substitution effect, where individuals substitute leisure for labor as the financial incentive increases. As a result, when individual labor supply increases due to rising wage rates, it highlights a fundamental principle in labor economics regarding how wages can influence the quantity of labor supplied.

When wage rates rise, individuals are incentivized to offer more labor hours or enter the labor market, leading to an increase in the overall labor supply. This is because higher wages signal to workers that their effort is rewarded with better pay, attracting both current workers who may choose to work more hours and potential workers who might decide it's worthwhile to seek employment. This positive correlation between wage rates and labor supply reflects the substitution effect, where individuals substitute leisure for labor as the financial incentive increases. As a result, when individual labor supply increases due to rising wage rates, it highlights a fundamental principle in labor economics regarding how wages can influence the quantity of labor supplied.