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Managerial Economics-Charles W. Upton The Value of Time t x X +t y Y +T w = T
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Managerial Economics-Charles W. Upton
The Value of Time
txX +tyY +Tw = T
The Value of Time 2
The Value of Time
• Almost all economic purchases require time to use. This is a cost of the good.
The Value of Time 3
The Value of Time
• Almost all economic purchases require time to use. This is a cost of the good.
• Add the time cost, valued at the consumer’s wage rate, to the cost of the product; and
The Value of Time 4
The Value of Time
• Almost all economic purchases require time to use. This is a cost of the good.
• Add the time cost, valued at the consumer’s wage rate, to the cost of the product; and
• Add the value of time, again valued at the wage rate, to the budget constraint.
The Value of Time 5
Hiring A Mowing Service
Hiring a Mowing Service
Wilson Smith
Mowing Service $500 $500
Out of Pocket, Self Mowing $100 $100
Time Cost $300 $4,000
Savings from Self Mowing $100 ($3600)
The Value of Time 6
Hiring A Mowing Service
Hiring a Mowing Service
Wilson Smith
Mowing Service $500 $500
Out of Pocket, Self Mowing $100 $100
Time Cost $300 $4,000
Savings from Self Mowing $100 ($3600)
The Value of Time 7
Hiring A Mowing Service
Hiring a Mowing Service
Wilson Smith
Mowing Service $500 $500
Out of Pocket, Self Mowing $100 $100
Time Cost $300 $4,000
Savings from Self Mowing $100 ($3600)
The Value of Time 8
Hiring A Mowing Service
Hiring a Mowing Service
Wilson Smith
Mowing Service $500 $500
Out of Pocket, Self Mowing $100 $100
Time Cost $300 $4,000
Savings from Self Mowing $100 ($3600)
20 hours at the value of their
time
The Value of Time 9
Hiring A Mowing Service
Hiring a Mowing Service
Wilson Smith
Mowing Service $500 $500
Out of Pocket, Self Mowing $100 $100
Time Cost $300 $4,000
Savings from Self Mowing $100 ($3600)
The Value of Time 10
The Formal Model
• Each unit of X takes tx hours;
• Each unit of Y takes ty hours.
The Value of Time 11
The Formal Model
• Each unit of X takes tx hours;
• Each unit of Y takes ty hours.
• The consumer spends Tw hours working and has T hours after allowing for sleep.
The Value of Time 12
The Formal Model
• Each unit of X takes tx hours;
• Each unit of Y takes ty hours.
• The consumer spends Tw hours working and has T hours after allowing for sleep.
txX +tyY +Tw = T
The Value of Time 13
The Formal Model
• Each unit of X takes tx hours;
• Each unit of Y takes ty hours.
• The consumer spends Tw hours working and has T hours after allowing for sleep.
txX +tyY +Tw = T
pxX +pyY = wTw + V
The Value of Time 14
The Formal Model
pxX +pyY = wTw + V
The Value of Time 15
The Formal Model
pxX +pyY = wTw + VtxX +tyY +Tw = T
The Value of Time 16
The Formal Model
pxX +pyY = wTw + VtxX +tyY +Tw = T
Tw = T – (txX +tyY )
The Value of Time 17
The Formal Model
pxX +pyY = wTw + VtxX +tyY +Tw = T
Tw = T – (txX +tyY )
(px+wtx)X +(py +wty)Y = wT +V
The Value of Time 18
The Formal Model
(px+wtx)X +(py +wty)Y = wT +V
The Value of Time 19
The Formal Model
(px+wtx)X +(py +wty)Y = wT +V
Fx = px+wtx
Fy=py+wty
The Value of Time 20
The Formal Model
FxX + FyY = wT +V
The Value of Time 21
An Illustration
Commodity Wage Rate
Time Out of Pocket Cost Cost
X $10 2 hours $15 $35
Y $10 3 hours $5 $35
The Value of Time 22
An Illustration
Commodity Wage Rate
Time Out of Pocket Cost Cost
X
$15
$10
2 hours $15 $45
$35
Y
$15
$10
3 hours $5 $55
$35
The Value of Time 23
Some Applications
• Shopping– Why do senior citizens shop on weekdays and
working people on weekends? Different values of time?
The Value of Time 24
Some Applications
• Shopping
• Dinner Reservations– Restaurants that take reservations must charge
more– Thus students will favor restaurants that don’t
take reservations– High wage earners will favor a policy of
reservations.
The Value of Time 25
Some Applications
• Shopping
• Dinner Reservations
• Automobiles or Mass Transit– Mass transit is cheaper but slower, hence its
appeal to low income households.
The Value of Time 26
Some Applications
• Shopping
• Dinner Reservations
• Automobiles or Mass Transit
• Convenience Foods– Time is money
The Value of Time 27
End
©2005 Charles W. Upton
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