Final answer:
A reservation wage is the lowest wage a worker is willing to accept for a job, and factors like opportunity costs and personal preferences affect this decision. Opportunity costs especially influence day-to-day choices, as seen in the example of saving money by bringing lunch from home instead of eating out. A shift in wage levels can alter work versus leisure decisions, impacting one's budget constraint and behavior.
Step-by-step explanation:
When determining one's own reservation wage, various factors should be considered such as personal skills, opportunity costs, personal preferences, and the minimum income level one requires to live. The concept of a reservation wage refers to the lowest wage at which a worker would be willing to accept a particular type of job.
Opportunity cost plays a critical role in decision-making. For instance, spending extra money on eating out when a cheaper alternative is available accumulates significant costs over time. If not spending those extra dollars allows one to afford a nice vacation, one might opt to save by bringing lunch from home. This example illustrates how understanding opportunity costs can influence behavior and choices.
Moreover, a change in wage can impact a person's labor supply decisions. When Vivian's wage increases to $12/hour, her budget constraint adjusts, giving her the flexibility to decide whether to work more hours to increase her income or enjoy more leisure time while maintaining the same level of income as before. These scenarios demonstrate the intricate balance between earning and enjoying the fruits of one's labor.