Final answer:
The question involves inter-temporal choice in economics, where an hour of leisure in period 1 is worth 1+r hours of leisure in period 2, considering the opportunity cost including interest on foregone wages.
Step-by-step explanation:
The question pertains to the concept of inter-temporal choice in economics, particularly focused on how individuals allocate their time between leisure and labor over different periods. In the context provided, we're examining the trade-off between leisure now versus leisure in the future, influenced by factors like the nominal wage rate and the rate of interest.
When we think about the trade-off between leisure in period 1 and period 2, we must consider the opportunity cost in terms of wages foregone and the potential interest that could be earned if we worked and saved the money instead. Thus, the answer to the student's question would involve a consideration of the interest rate (r). The correct choice would be d. 1+r as it takes into account the interest that could be earned on the wages from working an hour now if that time were instead worked in the subsequent period.
Using examples provided, if Vivian or Petunia decides to forgo an hour of work now in favor of an hour of leisure, they are essentially choosing less income now for more leisure time. If they made $10 per hour now, and the interest rate were 10%, they would be giving up not just $10 but also the additional $1 they could have earned by investing it—their hour of leisure in the future, therefore, costs them 1+r, or in this case, $11.