The demand for a good or service is shaped not only by preferences but also by economic factors such as price and income. Consider first the price of leisure. An hour of leisure has no necessary explicit cost. It is possible to sit under a tree and daydream without spending a cent. There is a definite cost to that hour of leisure however in the sense of an opportunity cost. Every hour spent in leisure is an hour that could have been devoted to market work. The opportunity cost of an hour of leisure therefore is equal to the wage rate per hour of work. The higher the wage is the higher the price of leisure.
The wage earned per hour multiplied by the number of hours worked per week yields total weekly earnings from work. This relationship between the wage rate hours worked and total income is known as the budget constraint. It shows all the various combinations of income and hours of work (and thus of leisure) that are available to an individual given the wage that he or she can earn in the market.
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