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:

Endowment

The initial allocation of income, goods, or resources that individuals or firms possess in an economy, often impacting their trading capabilities and outcomes in markets.

Price

The amount of money required to purchase a good or service, reflecting its value in a market economy.

Endowment

The total resources available to an individual or entity, including income, assets, and wealth.

Consumption

The process by which goods and services are used up by consumers, reflecting a part of the economy concerned with spending on final goods and services.