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Labor-Leisure Model in the Everyday Life

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Labor-Leisure Model in the Everyday Life

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  • March 28, 2013
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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...