Question

At a high enough wage rate, the person feels that he or she can afford to take more leisure time. Comment with examples

Answer 1

An individual with given total hours has to allocate the hours to work and leisure. The allocation depends on the wages more importantly. If the wages are higher a person may prefer to work more since the opportunity cost of an hour of labour is higher. Or he may find leisure more since for every hour he is getting an increased wage.

As we know that leisure is a normal good. As the wage rate increases, an individual finds it better to take more time off leisure because the income is increasing. So the person would want to enjoy more with given income.

All of these effects could be shown with the income and substitution effect.

The substitution effect wants that with increased income the person spends more hours working than leisure. That is he substitutes his leisure hours with the work hours.

Then we see the income effect that is with increased income the person sees that he can spent more on leisure.

So the effect is unknown or ambiguous and depends on elevl of income and substitution effect.