Labor Economics · intermediate
What moves on the Labor-Leisure Tradeoff diagram
Unconditional income shifts the budget constraint out without changing the wage, producing a pure income effect: slightly fewer hours worked, more consumption.
Start at the usual tangency: your chosen mix of leisure and consumption.
A UBI arrives: cash every week, no work required.
The budget line shifts up in parallel. The wage, and so the price of leisure, is unchanged.
This is a pure income effect: people take a little more leisure and more consumption. No substitution effect exists to push the other way.
Examiners ask this as: universal basic income, ubi, cash transfer, unconditional payment, basic income trial.
Other scenarios on Labor-Leisure Tradeoff