Reservation wage

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In labor economics, the reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job.[1] A job offer involving the same type of work and the same working conditions, but at a lower wage rate, would be rejected by the worker.

An individual's reservation wage may change over time depending on a number of factors, like changes in the individual's overall wealth, changes in marital status or living arrangements, length of unemployment, and health and disability issues. An individual might also set a higher reservation wage when considering an offer of an unpleasant or undesirable job than when considering a type of job the individual likes (see compensating differential).

Just as a worker has an incentive to search for a high wage when looking for a job, a consumer has an incentive to search for a low price when purchasing a good. The highest price the consumer is willing to pay for a particular product is that consumer's reservation price.

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  1. ^ Hall, Robert; Lieberman, Marc (2007). Economics: Principles and Applications. Cengage Learning. p. 342 – via Google Books.

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