The correct option is 1 and 3 only.
Explanation
The supply of labour represents the amount of labour (usually measured in hours) that workers are willing to offer at different wage rates. It is analyzed at both the individual level and the aggregate (market) level.
- Statement 1 is Correct: The market supply of labour is derived by aggregating (horizontally summing) the individual labour supply curves of all workers in the economy. It reflects the total number of work hours supplied by all individuals at a specific wage rate.
- Statement 2 is Incorrect: An individual labour supply curve is often depicted as "backward-bending." At high wage levels, the income effect (desire for leisure due to higher income) may dominate the substitution effect (opportunity cost of leisure), causing an individual to work less as wages rise. However, the market supply curve is not "always" backward-bending. In most contexts, the aggregate curve remains upward sloping because individual thresholds for entering the workforce vary.
- Statement 3 is Correct: The market supply curve for labour is generally upward sloping. As wages increase, two effects occur: existing workers may increase their hours (substitution effect), and crucially, new individuals are attracted to enter the workforce (extensive margin). This influx of new entrants ensures that the total quantity of labour supplied increases with the wage rate, preventing the aggregate curve from bending backward in typical market scenarios.
Key Takeaway: While individual labour supply curves can bend backward due to the income effect at high wages, the market labour supply curve is generally upward sloping because higher wages induce new workers to join the labour force.