**3.7 Individual labor supply curve**

**Figure 5** shows a typical individual labor supply curve. When the hourly wage rate is *w*1, the individual is willing to work *L*<sup>1</sup> hours and spends *T* � *L*<sup>1</sup> on leisure activities. When the hourly wage rate rises from *w*<sup>1</sup> to *w*2, the individual increases his/her hours of work from *L*<sup>1</sup> to *L*2. The substitution effect dominates the income effect, and the individual is substituting leisure with work. When the hourly wage rate rises from *w*<sup>2</sup> to *w*3, the individual reduces his/her hours of work from *L*<sup>2</sup> to *L*3.
