Lauren M. Dobbie

Compensated Variation

In Uncategorized on March 8, 2011 at 2:17 pm

Today I was working with one of the students that I tutor on the concept of compensated variation. In intermediate microeconomics we learn how to solve compensated variation problems that go something like this: if people buy an optimal amount of Good A and Good B at price A and price B with this amount of money, how much would we have to give them to keep them just as well off if one of those prices should increase?

Like most of the things I’ve learned in economics, this can be abstracted out quite widely. What if we asked ourselves what we would need in return if something in our lives changed or if something becomes harder to come by, do we look for something else to compensate us?

For instance, most of the people I know including myself seem to feel the inner price of their downtime going up and up and up. If I relax now, what am I giving up? Study time, cleaning time, errands time, time at work, and the list goes on and on.

Now, the decision of how to allocate time normally doesn’t include time for one’s self. When I look at my own planner all I see are my obligations to other people and projects. In fact, in microeconomics we study how individuals allocate time between “working” which we call “consumption” and “not working” which we call “leisure”. So if you have a job or a course of education that you are depending on for your earnings now (or earnings in the future as is the case with school) then the price of your leisure is very expensive.

Being conscious of this makes me ask myself two questions: Have I allocated my fixed amount of time properly? Or am I way too far to the “consumption” side? And if my time is allocated according to my preferences for money and time off then am I managing my leisure time properly? Am I doing what I want? Or am I giving that all away too?

For me now, time management doesn’t just mean ‘getting as much done as I possibly can in this scarce amount of time I have’… It is more comprehensive than that. I’m learning to think honestly about how I should be spending my time and I’m realizing that I’m too far on the consumption side. My leisure time is dropping down to a level that’s almost non-existent. In economics we call that a ‘corner solution’ where the individual is ‘all consumption’ (read: working all the time in order to consume) or ‘all leisure’.

The corners suck.

Balance is what I want so I’m trying to become more conscious about my Time Decision. When you’re time gets more and more expensive you need to make sure you’re compensating yourself for this on-going change. Making sure you have enough free time to yourself is part of all of this. So next time you feel overwhelmed by your own week, as yourself if you’re on the corner…

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