What is the labor-leisure budget constraint?
When making a choice along the labor-leisure budget constraint, a household will choose the combination of labor, leisure, and income that provides the most utility. The result of a change in wage levels can be higher work hours, the same work hours, or lower work hours.
How does income leisure relationship affect the supply curve of Labour?
In economics, a backward-bending supply curve of labour, or backward-bending labour supply curve, is a graphical device showing a situation in which as real (inflation-corrected) wages increase beyond a certain level, people will substitute leisure (non-paid time) for paid worktime and so higher wages lead to a …
What is the labor supply curve?
A labor supply curve shows the number of workers who are willing and able to work in an occupation at different wages. You can easily demonstrate that the labor supply curve has a positive slope by deriving one with your students.
What is the labor-leisure choice model?
The framework that economists typically use to analyze labor supply behavior is called the neoclassical model of labor-leisure choice. This model isolates the factors that determine whether a particular person works and, if so, how many hours she chooses to work.
Is leisure a normal good?
First, leisure is a normal good. All other things unchanged, an increase in income will increase the demand for leisure. Second, the opportunity cost or “price” of leisure is the wage an individual can earn. A worker who can earn $10 per hour gives up $10 in income by consuming an extra hour of leisure.
Is leisure always a normal good?
Leisure is generally assumed to be a normal good. Your demand for leisure increases, suggesting you will work less (income effect). The price of leisure, however, increases (since you’re higher paid, each foregone hour is more expensive), suggesting you will work more (substitution effect).
When leisure is a normal good?
If leisure is a normal good—the demand for it increases as income increases—this increase in income tends to make workers supply less labour so they can “spend” the higher income on leisure (the “income effect”).
Which factor will not shift the labor supply curve?
quantity demanded of labor decreases, but the demand for labor curve does not shift. A shift in demand for a given factor of production will NOT occur if: the price of that factor falls.
How do you find the optimal amount of consumption and leisure?
Her optimal mix of consumption and leisure is found by setting her MRS equal to her wage and solving for hours of leisure given the budget line: C = 320 + 5(168–L). Thus, Shelly will choose to leisure 136 hours, work 32 hours, and consume $320 + $5(32) = $480 each week.
What if leisure is an inferior good?
Note that if leisure is an inferior good, the labour supply curve could not be backward bending. If leisure is inferior the income and substitution effects reinforce one another (both lead to an increase in hours worked for a wage increase). Thus, the income effect dominates.
What is the logic of a labor-leisure budget constraint?
The economic logic is precisely the same as in the case of a consumption choice budget constraint, but the labels are different on a labor-leisure budget constraint. Vivian has 70 hours per week that she could devote either to work or to leisure, and her wage is $10/hour. The lower budget constraint in Figure 1 shows Vivian’s possible choices.
How does leisure time affect the labor supply curve?
Leisure time is time not spent at work. The decision-making process of a utility-maximizing household applies to what quantity of hours to work in much the same way that it applies to purchases of goods and services. Choices made along the labor-leisure budget constraint, as wages shift, provide the logical underpinning for the labor supply curve.
What are the choices in the new budget constraint?
One set of choices in the upper-left portion of the new budget constraint involves more hours of work (that is, less leisure) and more income, at a point like A with 20 hours of leisure, 50 hours of work, and $600 of income (that is, 50 hours of work multiplied by the new wage of $12 per hour).
How are hours of leisure and hours of Labor measured?
Hours of leisure are measured from left to right on the horizontal axis, while hours of labor are measured from right to left. Vivian will compare choices along this budget constraint, ranging from 70 hours of leisure and no income at point S to zero hours of leisure and $700 of income at point L.