Would leisure time considered an inferior good when the substitution effect dominates?
I think that the answer is yes because if you are willing to work more hours in order to make more money than you do not value leisure time that much.
Is this correct? Thank you
Yes, your understanding is partially correct. Leisure time can be considered an inferior good when the substitution effect dominates.
The substitution effect refers to the change in consumption patterns that occurs when the price of a good or service changes relative to the price of other goods or services. In this case, when the price (or opportunity cost) of leisure time increases, individuals may choose to substitute leisure with work in order to earn more income.
When the substitution effect dominates, people are more inclined to prioritize work over leisure time. They see the opportunity cost of leisure time (in terms of potential income foregone) as higher, therefore valuing it less. As a result, they may choose to spend more time working and less time engaging in leisure activities.
However, it's important to note that the categorization of leisure time as an inferior good also depends on the income effect. The income effect refers to the change in consumption patterns due to changes in purchasing power resulting from changes in income level. If the income effect is significant and the increase in income leads to a greater preference for leisure time, then leisure time may not be considered an inferior good.
To determine whether leisure time is an inferior good, you would need to analyze how individuals respond to changes in price (opportunity cost) and changes in income. Through empirical research or economic analysis, it would be possible to determine whether the substitution effect dominates and whether leisure time is considered an inferior good in a particular context.