choice of labor - dependent on utility of leisure and money  

• leisure competes w/ income for utility
  • wage rate measures price/value of leisure
• u(L,Y)
  • L = hours of leisure
  • Y = income = wh
  • w = wage
  • h = hours worked
  • L+h = 24
• uL / uY = w at maximum utility

income/substitution  

• higher wages >> workers replace hours worked w/ leisure
  • substitution effect
  • work hours and leisure shift to satisfy initial utility
• higher wages >> workers can purchase more goods
  • income effect
  • work hours and leisure shift to obtain highest possible utility
• income effect exceeds substitution effect >> backward bending supply curve

*examples to come*     monopsony power - only 1 firm to buy up labor (ie. gov't, NASA)  

• marginal value (MV) = marginal expenditure (ME)
• monopsonist pays same price for each unit >> average expenditure = supply