Question

Two students debate about the realism of economic assumptions. Donald is an economics student and Boris is a sociology student. They argue about a key assumption in the labor supply model: leisure is a good (more leisure is preferred to less leisure). Boris argues that some people enjoy work, therefore hours of work is not a bad and the labor supply model is not applicable to these people. Donald argues that that even if these people enjoy work, the labor supply model is still applicable if the marginal utility of leisure if larger than the marginal utility of work. Who is correct? Explain.

Answer 1

From the above given case, Donald is correct as no matter the situation if an individual is right or wrong, the Labor Supply model is applicable.

Say that a person is able to either work or rest (leisure), with a given fixed resource which is time. Also let us assume this person is employed into construction, and he personally enjoys it.

Under the Law of Diminishing Marginal Utility, repeated consumption as well as rendering of a particular commodity or service leads to reduction in the marginal utility derived from it. This means lesser utility is added to Total utility.

If the person, keeps on working on the task for long periods of time without any leisure, the utility derived from working on his favourite job decreases no matter what and the utility derived from leisure increases as he doesn't gets any. Thus the person will be at a stage where he will value leisure more than working, even though he enjoys his work.

We must also consider the possibility of workplace fatigue, as any human being is bound to get tired and requires rest from doing a particular task whether it is physical task or mental task ( desk jobs ). Working has a direct relationship with fatigue and higher the working hours, higher will be a person's fatigue. In order to counter this and make sure that workers get enough rest so that they can work at their full capacity , rest and leisure hours are mandatory and with that labor supply model is applicable irrespective of the preference of the workers.

In conclusion, Donald's statements holds validity.