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While the demand for labour is determined by firms, the supply of labour depends on the decisions of individuals and the characteristics of the workforce. Understanding both individual and market supply is essential for analysing wage determination and labour market outcomes.
An individual's decision about how many hours to work involves a trade-off between two things they value: income (which allows consumption of goods and services) and leisure (time spent not working, including rest, hobbies, and family time).
This trade-off was formalised by Lionel Robbins (1930) and later developed within the neoclassical framework using indifference curve analysis.
When the wage rate rises, two opposing effects operate on the individual worker:
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