A rise in the wage rate raises the ‘opportunity cost of leisure’. For an individual who can work at the given wage, the opportunity cost of one hour of leisure is:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → the wage she could have earned by working for that hour
Opportunity cost is the gain given up from the next best use of something. An hour spent on leisure is an hour not spent at work, so the gain given up is the wage for that hour.
This is why a higher wage makes leisure costlier: each hour of rest now gives up more income.
This question uses Introduction (Chapter 1) and Market Equilibrium together.
NCERT (2026-27): “Wage Determination in Labour Market … This increase in wage rate will have two effects: First, due to the increase in wage rate, the opportunity cost of leisure increases which makes leisure costlier. Therefore, the individual will want to enjoy less leisure. As a result, they will work for longer hours.” Introductory Microeconomics, Chapter 1 (Introduction): “Production Possibility Frontier … If more of the scarce resources are used in the production of corn, less resources are available for the production of cotton and vice versa. Therefore, if we want to have more of one of the goods, we will have less of the other good. Thus, there is always a cost of having a little more of one good in terms of the amount of the other good that has to be forgone. This is known as the opportunity costa of an additional unit of the goods.” Glossary: “Opportunity cost of some activity – is the gain foregone from the second best activity.” |