What is the price of an hour of leisure? An hour of nonmarket work? What does it mean to say that leisure is a normal good? Why doesn’t the market supply curve for labor bend backward?

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gsenviro | College Teacher | (Level 1) Educator Emeritus

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The price of an hour of leisure is the amount of money you lost by not working for that hour, so it is the hourly wage. 

The price of an hour of non-market work is actually more than the hourly wage, simply because one does not have to pay taxes (income tax, social security, etc.). 

If leisure is a normal good then with an increase in wage rate, people would substitute higher leisure for income, since the value of leisure would also increase and people would like to spend the higher income on leisure and other personal activities. 

The market supply curve for labor arises due to trade-offs between income and leisure. If an increase in income causes people to devote less time to leisure (substitution effect) the slope of the curve is positive. However, if the increase in income leads to people providing less labor in order to spend higher income on leisure (income effect), the curve bends backwards. 

The curve does not bend backward because it does not include the effect of wages of workers from other sectors. If the curve bends backwards for one sector and the number of paid hours provided are fewer, the same job may become attractive to other people. Hence, if we include the supply curves of other sectors of economy, we find that the market supply curve for labor does not bend backwards. 

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