Friday, July 13, 2012

Are you going on vacation this year?

Good morning economists. Today I would like to discuss the changing patterns as far as the concept of vacationing is concerned. I remember a couple of years ago, around this time, people would ask me where I would go for my summer vacation. This year, the question has changed slightly. "Are you going on vacation", I am being asked.

This got me thinking about the labor-leisure model and how it is changing because of the recession. Imagine for a moment that your decision options involve the hours spent at work and the hours spent on leisure. Your decision will determine how many hours you will work every day and how many hours you will spend on other activities. We can visualise the model in the following way:


Your preferences are represented by the indifference curve IC. Since the day only has 24 hours, your preferences will determine how these hours will be spent. In the example above this person is spending 12 hours working and 12 hours on leisure activities.This is represented with the point A.

Due to the current recession, and the rising need for income, people's preferences are changing. The shape of the indifference curve is such that point A has moved up towards preference for income generating activities. In other words people are working more and vacationing less.

In the end finding the right balance is important as this will have a direct impact on our utility or enjoyment. So are you going on vacation this year?

Have a nice day!

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