Labor Economics

Question

Draw a budget constraint for someone who has a potential job that pays $12 per hour, but in order to work, they have to commute 2 hours each day.

Q. A year later public transportation becomes available and it reduces the commute to 30 minutes per day. Does that change the probability that this individual would take the job? Why or why not? Explain using a carefully drawn graph.

Answer 1

Yes, reducing the commute from 2 hours to 30 minutes would increase the probability that the individual takes the job because working now requires less time without reducing their earnings.

To illustrate this, draw a graph with leisure hours on the horizontal axis and income on the vertical axis. Draw the original budget constraint, then draw a second line shifted outward to represent the shorter commute. Both lines have the same slope because the hourly wage remains $12.

The shorter commute allows the individual to earn the same income while enjoying more leisure time, making the job more attractive.