Production
By working harder and giving up current leisure, we could increase our production of goods and services. Hypothetically, the production possibilities curve would shift outward if everyone worked more hours and took less leisure time. Strictly speaking, however, leisure is also a good, so we would simply be giving up leisure to have more of other things. If we were to construct a production possibilities curve for leisure versus other goods, this would be shown as simply a movement along the curve. However, if we restrict our model to only material goods and services, a change in the amount we work would be shown as a shift in the curve.
How much people work depends not only on their personal preferences but also on public policy. For example, high tax rates on personal income may cause people to work less. This is because high tax rates reduce the payoff from working. When this happens, people spend more time doing other, untaxed activities-like leisure activities. This will move the production possibilities curve for material goods inward because the economy can’t produce as much when people work less.