Role Of Factor-Price In Supply Function It is interesting to analyse the role of factor-price in factor supply function in this case.

For example, take the case of labour supply as a function of wage rate. If the wage rate rises, normally we expect that laborers would supply more labor. But a point may be soon reached when laborers may decide to supply less labour as the wage rate rises, because their demand for leisure increase. In other words, as the wage rate rises, the laborers find that they can maintain their same old standard of living by working less and so they prefer leisure to labour. Some of the Fig.

SUPPLY OF LABOUR Technical concepts that we have introduced earlier may offer a satisfactory explanation of this case. As wage rate rises, the price of leisure increases the demand for leisure increase through the income effect. The substitution effect also work such that leisure is preferred to labour. As a result of these two effects, when the wage rate rises, the reservation demand for labour increase and, therefore, the market supply of labour decreases. We get a backward bending supply curve for labour, as illustrated in the above Fig. First, labour supply is wage-elastic; then slowly and gradually it becomes wage-inelastic and eventually the initial trend is totally reversed Such backward-sloping input supply function may be true of managerial skill. Sometimes even when salary-hike is announced, a salaried manager prefers leisure to added managerial responsibility.

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