Macroeconomics- Effects on Leisure in terms of ... - Travel and Leisure

Jul 12

8

Question by bl: Macroeconomics- Effects on Leisure in terms of income and substitution effects?
I have a problem where I?m getting the fact that leisure does not depend on wages, but rather on specific constants (so leisure is always constant no matter what the wage). How can I explain this outcome using the income and substitution effects? I feel like the trivial answer is that the two effects are balancing each other out and every wage change (If we graph the Budget Constraint on a Consumption vs. Leisure graph). A little help please.

Best answer:

Answer by Rich
If you work more, then you spend time less time on leisure (substitution effect). If you work less, you have more time for leisure. The income effect comes into play because when you work more, you earn more. Let?s say w (wage rate) is 5 per hr and L is the number of hours you work. If you want to work less than your L falls, thus your income falls (income effect).

What do you think? Answer below!

Source: http://www.easterna.com/2012/07/macroeconomics-effects-on-leisure-in-terms-of-income-and-substitution-effects/

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