Dr.J has 80 hours per week to divide between work and leisure.His wage rate if $5 per hour.Dr.J receives a lump sum payment of $150 per week.Suppose that the first $100 per week of his labor income is untaxed, but all labor income above $100 is taxed at a rate of 70%.
A)Dr.J's budget line has a kink where his income is $250 and his leisure is 60 hours.
B)Dr.J's budget line has no kinks in the part of it that corresponds to a positive labor supply.
C)The slope of Dr.J's budget line is everywhere -1.50.
D)Dr.J's budget line has a kink in it at the point where he takes 70 units of leisure.
E)Dr.J's budget line has a piece that is a horizontal straight line.

Question

Quizplus · Accepted Answer

Dr.J's budget line has a kink where his income is $250 and his leisure is 60 hours because at this point, he has worked 20 hours, earning $100 which is untaxed, and the rest of his income is from the lump sum payment.

DrJ Has 80 Hours Per Week to Divide Between Work