Substitution effect of increase in income:
Substitution effect states that if the income increases, then the people would work for more hours since the opportunity cost of leisure time is high. If the person is idle or taking rest for an hour instead of working, then he/she will lose more money now than before. Therefore, the increasing income induces the worker to work for more hours to earn more income. Hence, the increase in income leads to an increase in the supply of labor and vice-versa.Income effect of increase in income:
Income effect states that if the income increases, then people would work fewer hours since they can earn the same amount of income by reducing the work hours. If the person's income increases, then the people would demand more goods, including leisure time. Hence, the increase in income leads to a reduction in the labor supply and vice-versa.Increase in living cost:
If other things remain constant, the increasing living cost reduces the purchasing power. To compensate the decreasing value, people would work for more hours to earn more income. Since the decreasing income reduces the demand for normal goods, including leisure time, income effect is dominated than the substitution effect.
Labor union refers to the systematic organization of employees with the intention to protect their rights and improve their standard of working environment.
Perfect competition refers to the market structure with the features of more number of sellers and buyers in the market. Firms sell homogenous product. Price is fixed by the market demand and supply. Individual firms cannot change the price. Firms can easily enter or exit from the market. Firms and consumers are well informed about the market. Firms are competing with each other.
Oligopoly refers to the market structure with the features of few sellers and more buyers. Oligopoly firms produce homogenous goods and are competing with themselves. There is no easy entry in to the market due to huge investment. Information about the market is unavailable.Wage increases:
When the wage of labor increases, then the cost of production would increase. This in turn leads to an increase in the price of product to maintain the profit. Since prices are fixed by the market forces in the perfect competition, the firms cannot increase the price. Hence, unions are less effective to increase the wages in perfect competition.
But in the case of oligopolistic competition, firms can fix the price. If the wage increases, then the firms can increase the price of the product. Hence, unions are effective to increase the price in oligopolistic competition.
Three uses of an individual's time:
An individual's time can be utilized in the following three ways:
Market work refers to the man hours devoted to produce goods and services through which an individual can earn income in the labor market. In other words, any work that is paid for in the labor market is market work.
• Time spent by a carpenter to make wooden furniture in the furniture shop.
• Work hours spent by salesmen to sell televisions in television shops.
Nonmarket work refers to the man hours devoted to satisfy individual's his/her own needs which cannot earn income in the labor market. In other words, any work which is unpaid is called nonmarket work.
• Time spent on personal care.• Time devoted for babysitting.• Time spent on household chores.
• Time devoted for tutoring children.
Leisure refers to the time which is not spent on both paid and unpaid work. In other words, it is time spent on entertainment and relaxation.
• Walking in a park.
• Weekend parties.
• Listening to music.• Watching videos.
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