Labor-Leisure Model in the Everyday Life

Topics: Economics, Indifference curve, Consumer theory Pages: 5 (1519 words) Published: March 28, 2013
Labor-Leisure Model in the Everyday Life
I like many other college students am not currently seeking work in the labor force. As a student athlete playing golf I am constantly juggling my time between my studies as a senior Economics major, and maximizing my golfing potential and chasing my ultimate dream of becoming a professional golfer. Throughout this paper I will explain how I maximize my utility in different circumstances using the labor-leisure model.

As I am not actively looking for work in the labor market my indifference curve is so steep there are no tangencies to my reservation wage, which is defined as the “lowest wage rate at which a worker is willing to accept a job.” By dedicating all my time to studying and practise, and none to the labor force my indifference curve has no tangency to my constraint. As a rational person who wants to maximize utility; the current wage rate is not high enough for me to substitute work for things I prefer to do in my free time, such as playing golf or studying for a test. I am fortunate enough that my parents have the opportunity to help me financially during my time at college, so I have a source of “unearned income” that I receive for working zero hours in the labor market. This “unearned income” is shown by the spike in figure 1 below.

As mentioned above because of my high regard for leisure and the modest wages I am offered as a student with some college experience; my indifference curve has no tangencies to my constraint. Figure 1 depicts where utility is maximized at point A. As a utility maximizer it suits my personal preferences to accept the unearned income given to me by my parents and consume more leisure time. “Point [A] represents the highest utility that can be reached by [myself], given the budget constraint.” The labor-leisure model makes the assumption that leisure is a desirable product, which in my case it is. Furthermore, substituting three or four hours in the labor force for more hours of leisure time is an easy decision for a utility maximizer to make. The government faces similar problems with modern day welfare. Because of the modest wages offered to unskilled workers, and size of recent welfare packages many people maximize utility by removing themselves from the labor force, and accept benefits offered by the government whilst consuming more leisure time. As mentioned above, during school I am constantly dividing my time between practising for golf, and studying my current classes. Using the Production Possibilities frontier (shown in Figure 2 below) I can graphically show the choices I make in a variety of scenarios as a utility maximizer. Like most economic models it is a simplification of reality that represents “economic processes by a set of variables and a set of logical quantitative relationships between them.” To maintain the simplicity of the model I am assuming my average day consists of 16 hours, of which I divide my time between either practising golf or studying. I rarely dedicate all my waking hours to specifically golf or studying, but for the consistency of this model that assumption will be made. Figure 2 shows my personal production possibilities frontier, which “shows the alternative outputs of [golf practise] and [studying] that can be produced” by myself in any given day. “The production possibility curve clearly exhibits the notion of technical efficiency.” Any point inside the curve is considered inefficient, and any point outside the curve is unachievable. The production possibility frontier clearly shows that depending on how I allocate my time directly affects my productivity in both areas. For example, if I dedicate a disproportionate amount of time to studying my golf performance will decline as my grades increase, and vice-versa.

As shown in Figure 2 there are many different combinations of golf practise and studying. Maximizing utility in this model is my selection of the most...
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