Question

On the level of personal decision-making what are examples of economic choices a person makes in their normal daily life?

After listing examples, pick one and analyze the choice in terms of alternatives you gave up by making that choice.

Answer 1

At the personal decision-making level, the examples of economic choices that a person make in a normal daily life includes:

1) Whether to have breakfast , lunch or dinner cooked at home or at some restaurant or order online

2) Whether to go for work or stay at home enjoying leisure time activities (fun activity , watching movie or resting)

3) Whether to buy a good or service at a retail shop or order online

4) Whether to save or spend money

5) Whether to buy an insurance policy or not

6) Whether to drive to work or hire car pooling service or take a auto or walk up to the office

7) Whether to buy a burger or have a full-course meal

8) Whether to buy a branded item or loose item

Description of: economic choice of going for work or staying at home enjoying leisure time activities

It shall be noted that in 24 hours that one has in 1 day, one can devote hours to work, sleep and some leisure time activities.

When one devote hours to work, the number of hours spent on leisure time activity falls and one earns income based on hours one worked.

The greater the sacrifice on leisure hours, greater is the number of hours devoted to work and larger is the money income earned.

It shall be noted that leisure activity provides satisfaction in direct sense. On the other hand, income earned helps in purchase everyday's ends meet which in turn provide satisfaction.

Thus, for a given total amount of satisfaction that a person derive on daily basis, one can have alternative combination of money income & leisure. That means , there is a trade off. When one choose more of work hours, one makes sacrifice of leisure hours thereby indicating lesser time spent on having fun, watching tv at home, gossiping with friends & family and/or resting & sleeping.

The actual choice between income and leisure hours is governed by the wage rate per hour of work. This is considered the opportunity cost of leisure. It has both income effect and substitution effect.

Higher the wage rate, greater will be the tendency to spend hours at work than at leisure time activity initially as substitution effect of rising wage rate overwhelms the income effect of rising wage rate but beyond a given higher wage rate, the income effect of rising wage rate overwhelms the substitution effect of rising wage rate, the tendency to spend hours at work is lower than the hours spent at leisure time activity. This amounts to backward bending labor supply curve.