Mr.Cog has 18 hours a day to divide between labor and leisure.If he has 16 dollars of nonlabor income per day and gets a wage rate of 7 dollars per hour when he works, his budget equation, expressing combinations of consumption and leisure that he can afford to have, can be written as
A)7R + C = 142.
B)C = 142 + 7R.
C)7R + C = 16.
D)R + C/7 = 184.
E)C = 190 + 7R.

Question

Quizplus · Accepted Answer

The budget equation is derived from the total income, which is the sum of nonlabor income and income from labor. Mr. Cog can work up to 18 hours, so his maximum labor income is 18 * 7 = 126 dollars. Adding his nonlabor income of 16 dollars gives a total of 142 dollars. Therefore, the budget equation is 7R + C = 142, where R is leisure hours and C is consumption.

MrCog Has 18 Hours a Day to Divide Between Labor