1. Copyright © 2009 Pearson Education, Inc. Chapter 6 Supply of Labor to the Economy: The Decision to Work

2. Copyright © 2009 Pearson Education, Inc. 6- 2 Table 6.1: Labor Force Participation Rates of Females in the United States over 16 Years of Age, by Martial Status, 1900-2005 (percentage)

3. Copyright © 2009 Pearson Education, Inc. 6- 3 Table 6.2: Labor Force Participation Rates for Male in the United States, by Age, 1900-2005 (percentage)

4. Copyright © 2009 Pearson Education, Inc. 6- 4 Table 6.3: Labor Force Participation Rates of Women and Older Men, Selected Countries, 1965-2004 (percentage)

5. Copyright © 2009 Pearson Education, Inc. 6- 5 Important Definitions - The Decision to Work I Work vs. Leisure Pure Income and Substitution Effects Income and Substitution Effects of A Wage Change Backward Bending Labor Supply Curve

6. Copyright © 2009 Pearson Education, Inc. 6- 6 Figure 6.1: An Individual Labor Supply Curve Can Bend Backward

7. Copyright © 2009 Pearson Education, Inc. 6- 7 Important Definitions - Indifference Curves I Characteristics Each combination along an IC represents the same level of utility IC’s further from origin represent higher levels of utility IC’s do not intersect IC’s are negatively sloped IC’s are convex (Marginal Rate of Substitution Declines)

8. Copyright © 2009 Pearson Education, Inc. 6- 8 Figure 6.2: Two Indifference Curves for the Same Person

9. Copyright © 2009 Pearson Education, Inc. 6- 9 Figure 6.3: An Indifference Curve

10. Copyright © 2009 Pearson Education, Inc. 6- 10 Figure 6.4: Indifference Curves for Two Different People

11. Copyright © 2009 Pearson Education, Inc. 6- 11 Important Definitions - Consumer Equilibrium Budget Constraint Wage Rate and the Slope of the Budget Constraint Tangency Condition for Consumer Equilibrium Corner Solution Pure Income Effect and Consumer Equilibrium

12. Copyright © 2009 Pearson Education, Inc. 6- 12 Figure 6.5: Indifference Curve and Budget Constraint

13. Copyright © 2009 Pearson Education, Inc. 6- 13 Figure 6.6: The Decision Not to Work is a “Corner Solution”

14. Copyright © 2009 Pearson Education, Inc. 6- 14 Figure 6.7: Indifference Curves and Budget Constraint (with an increase in nonlabor income)

15. Copyright © 2009 Pearson Education, Inc. 6- 15 Income and Substitution Effect of a Wage Change Solution When Substitution Effect Dominates Solution When Income Effect Dominates

16. Copyright © 2009 Pearson Education, Inc. 6- 16 Figure 6.8: Wage Increase with Substitution Effect Dominating

17. Copyright © 2009 Pearson Education, Inc. 6- 17 Figure 6.9: Wage Increase with Income Effect Dominating

18. Copyright © 2009 Pearson Education, Inc. 6- 18 Figure 6.11: The Size of the Income Effect is Affected by the Initial Hours of Work

19. Copyright © 2009 Pearson Education, Inc. 6- 19 Important Definitions - Policy Applications Unemployment Compensation Guaranteed Annual Income Workfare

20. Copyright © 2009 Pearson Education, Inc. 6- 20 Figure 6.13: Budget Constraint with a Spike

21. Copyright © 2009 Pearson Education, Inc. 6- 21 Figure 6.14: Income and Substitution Effects for the Basic Welfare System

22. Copyright © 2009 Pearson Education, Inc. 6- 22 Figure 6.15: The Basic Welfare System: A Person Not Choosing Welfare

23. Copyright © 2009 Pearson Education, Inc. 6- 23 Figure 6.16: The Welfare System with a Work Requirement

24. Copyright © 2009 Pearson Education, Inc. 6- 24 Example 6.6: Wartime Food Requisitions and Agricultural Work Incentives

25. Copyright © 2009 Pearson Education, Inc. 6- 25 Figure 6.17: Earned Income Tax Credit (Unmarried, Two or More Children), 2006