Could leisure be considered a Giffen good?

Question

One of my microeconomics fellow students asked this and it got me thinking. The leisure demand curve is a mirror of the labour supply curve. In the section where the Income Effect is greater than the Substitution Effect, would leisure be considered a Giffen good as well as an inferior good? Because the price of undertaking leisure is your wage.

Answer 1

Interesting thought but the answer is no. In reality, where the labor supply curve is Backward bending leisure is a superior good. The Budget constraint (for a 24 hour day) is 24w (y intercept) - w(leisure). When we change the wage we are changing maximum potential income. We are pivoting the budget constraint on the leisure axis, not the "income axis".. If you were to make a transfer payment to this "worker" in the amount K. the budget constraint would Shift up in a parallel fashion. (with 24 hours of leisure he gets K) you will see that he will consume more leisure (work less) have a higher total income. The income consumption cure would be positively sloped.

I like the way you are thinking. You are really looking at a cross price elasticity instead of an own price elasticity.