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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