In order to have the means to buy goods and services, most people have to
work at least part of the time to generate income. While many would prefer not
to work, the existence of this tradeoff between free time and consumption of
goods forces most to work to be able to buy the minimum amount of goods to keep
them content. Because people have different preferences, the ratio of leisure
to consumption will vary from person to person: Joe might prefer to work hard
and buy a yacht, and Lawson might prefer to sit on the beach and barely scrape
together enough income to buy food and sunscreen. All workers in the labor
market have to make this decision: how much free time do they want and how
much "stuff" do they need?
Economists model this decision in much the same way that they model buyers'
optimization of their choices between different goods and services. Because
it's the same people making the decision (the buyers are also the workers), and
because they are making a similar choice (between free time and consumption), we
can use the same choice optimization under a budget constraint that we
used in the unit on supply and
demand.
In this unit, we will observe the preferences of individual workers and see how
this behavior translates into their labor/leisure decisions.
