At a low wage rate, the wage rises. Arrange the following in the correct sequence to show how an individual’s labour supply responds:
(A) The wage rate rises.
(B) The opportunity cost of leisure increases.
(C) Leisure becomes costlier, so the individual wants to enjoy less leisure.
(D) The individual works for longer hours.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (B), (C), (D)
(A) The wage rate rises. — The starting change.
(B) The opportunity cost of leisure increases. — An hour of leisure now gives up a higher wage, so the opportunity cost of leisure rises.
(C) Leisure becomes costlier, so the individual wants to enjoy less leisure. — Leisure has become dearer, so the person wants less of it.
(D) The individual works for longer hours. — Less leisure means more hours of work. At low wages this effect is stronger than the rise in purchasing power.
NCERT (2026-27): “Wage Determination in Labour Market … This increase in wage rate will have two effects: First, due to the increase in wage rate, the opportunity cost of leisure increases which makes leisure costlier. Therefore, the individual will want to enjoy less leisure. As a result, they will work for longer hours. Second, because of the increase in wage rate to w2, the purchasing power of the individual increases. So, she would want to spend more on leisure activities. The final effect of the increase in wage rate will depend on which of the two effects predominates. At low wage rates, the first effect dominates the second and so the individual will be willing to supply more labour with an increase in wage rate.” |