10 Tomoko receives a lump sum child support payment of 200 p

10. Tomoko receives a lump sum child support payment of $200 per week. She has 80 hours a week to divide between labor and leisure. She earns $5 an hour. The first $100 per week of her labor income is untaxed, but all labor income that she earns above $100 is taxed at the rate 50%. If we graph her budget line with leisure on the horizontal axis and consumption on the vertical axis, her budget line has a. no kinks in the part that corresponds to positive labor supply b. a kink in it where her income is $300 and her leisure is 60 units. c. a kink in it at the point where she takes 70 units of leisure. d. a slope of -2.50 everywhere.

Solution

Answer:- Tomoko receives a lump sum child support payment of $200 per week. She has 80 hours a week to divide between labor and leisure. She earns $5 an hour. The first $100 per week of her labor income is untaxed, but all labor income that she earns above $100 is taxed at the rate 50%. If we graph her budget line with leisure on the horizontal axis and consumption on the vertical axis, her budget line has

Correct Answer:- a kink in it where her income is $300 and her leisure is 60 units