Explain the expression “time is more valuable than money.” Explain in words and use a diagram to illustrate the implications of this for a person’s labor supply curve.
What will be an ideal response?
A person has a certain amount of time that can be spent working or in leisure. The more time they spend working, the more money they earn, but the less time they have for leisure (and vice versa). An increase in the wage is believed to have two effects: a substitution effect and an income effect. The substitution effect causes the person to work more when the wage increases and substitute away from leisure which has become relatively more expensive. The income effect causes the person to work less and consume more leisure when the wage increases because they are now wealthier. The overall effect of a change in the wage on a person’s labor supply depends on which effect dominates. If time is more valuable than money, then that is saying that the income effect dominates the substitution effect.The diagram should show the labor supply curve as a backward-bending curve. The upward-sloping part is where the substitution effect dominates, and the backward-bending part is where the income effect dominates. If time is more valuable than money, a person must be on the backward-bending part of the labor supply curve.
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If fewer families choose to purchase medical insurance because of rising health insurance premiums, then:
A. the frequency of illness in the general population will fall. B. those who remain insured will tend to spend less on health care. C. those who remain insured will tend to have lower-than-average rates of illness. D. those who remain insured will tend to have higher-than-average rates of illness.
Which of the following properly ranks the size of tax revenues received by the federal government from highest to lowest?
A. Income taxes, Social Security payroll taxes, corporate taxes, and excise taxes. B. Social Security payroll taxes, excise taxes, corporate taxes, and income taxes. C. Corporate taxes, Social Security payroll taxes, income taxes, and excise taxes. D. Excise taxes, Social Security payroll taxes, income taxes, and corporate taxes.
Flexible, or floating, exchange rate is determined by the:
A. World Bank. B. forces of supply and demand. C. price of gold. D. Federal Reserve.
When the Motor Carrier Act of 1980 was made into law, new firms entered into the trucking industry. This action by new trucking firms confirms that:
A. the trucking industry was earning profits in the long run prior to the entry of the new firms. B. the trucking industry was earning losses in the long run prior to the entry of the new firms. C. the trucking industry was earning profits as a result of the entry of the new firms. D. the trucking industry was earning losses before and after the entry of the new firms.