Monday

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 7 Topics for Further Study
Chapter 21 of 36 The Theory of Consumer Choice
Section 19 of 26
Figure 13 – The Work-Leisure Decision
This figure shows Sally's
· budget constraint for deciding how much to work
· indifference curves for consumption and leisure
· optimum decision
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Three main questions involving the theory of consumer choice:
1- Do all demand curves slope downward?
2- How do wages affect labor supply?
3- How do interest rates affect household saving?
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2- How do wages affect labor supply?
Previously we’ve used the theory of consumer choice using indifference curves and budget constraint lines to analyze how a person allocates income between two goods.
We can also apply the same theory to analyze how a person allocates time.
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People spend most of their time awake either working, so they can buy consumption goods, or enjoying leisure.
Consider the decision facing Sally, a freelance software designer.
Sally is awake for 100 hours per week, time mostly spent designing software at her computer and enjoying leisure riding her bike and watching television.
She earns $50 for every hour she works developing software, which she spends on consumption goods including food and clothing.
Her $50 wage reflects the trade-off Sally faces between leisure and consumption.
For every hour of leisure she gives up, she works one more hour and earns $50 of consumption.
Per Figure 13 Sally's budget constraint line is $5000~100 hours.
If she spends all 100 hours enjoying leisure, she has no money for consumption.
If she spends all 100 hours working she earns a weekly consumption of $5,000 but has no time for leisure.
If she works a normal 40 hour week, she enjoys 60 hours of leisure and has weekly consumption of $2,000.
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The Figure 13 indifference curves represent Sally's preferences for consumption and leisure.
Here consumption and leisure are the two goods between which Sally is choosing
Sally always prefers both more leisure and more consumption.
So, she prefers points on higher indifference curves to points on lower ones.
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At a wage of $50 per hour Sally chooses a combination of consumption and leisure represented by the optimum point.
This is the point on the budget constraint on the highest possible indifference curve, I2.
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work time and leisure time
rōdō jikan to yoka jikan
労働時間と余暇時間