Dr J Has 80 Hours Per Week to Divide Between

question 12

Multiple Choice

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.

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Definitions:

Supply Equation

A mathematical representation of the relationship between the quantity of a good supplied by producers based on various factors, including price.

Price Ceiling

A legal maximum price set by the government for a particular good or service, aimed at preventing prices from reaching excessively high levels.

Shortage/Surplus

A shortage occurs when demand exceeds supply for a product or service, whereas a surplus occurs when supply exceeds demand, leading to downward pressure on prices.

Demand Equation

A mathematical expression that relates the quantity of a good that consumers are willing to buy to the good's price and other variables such as income and the price of related goods.