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to the right on the
x-axis, that's leisure.
That's the good.
As you move to the left,
that's labor.
That's the bad.
OK?
That's just illustrating.
But we're going to
model the good.
We're going to model leisure.
Your trade-off is between how
much you want to consume and
how much leisure you
want to take.
Now, here's what's
interesting.
In general, what determines
the slope of a budget
constraint?
What determines the slope
of a budget constraint?
AUDIENCE: Marginal rate
of transformation.
PROFESSOR: Which is what?
AUDIENCE: Ratio between
prices.
PROFESSOR: Ratio
between prices.
Prices determine the slope
of the budget constraint.
But here's what's tricky.
What's the price of leisure?
AUDIENCE: Wage.
PROFESSOR: The wage.
Why?
AUDIENCE: Because for every hour
you take having leisure,
you are effectively using
money that you
could gain at work.
PROFESSOR: Exactly.
The key is the economic concept
of opportunity cost,
which we've talked about and
will continue to talk about
this semester, opportunity cost.
By not working, you are
forgoing earning a wage.
So that is the price
of leisure.
You may not think of it this
way, but, once again, that's
why we're the dismal science.
When you go home today, and you
sit on the couch, and you
watch TV for an hour, you
have just paid a price.
And that price is what you
could have earned by
working that hour.