The absolute value of the slope of the consumption-leisure budget line is the after-tax wage, w. suppose some workers earn w for up to 40 hours of work each week and then earn 2w for any hours worked thereafter (called overtime). Other workers may earn w for up to 40hours of work each week then only earn .5w thereafter as working more than 40 hours requires getting a second job, which pays an hourly wage less than their primary job. Both types of workers experience a kink in their consumption-leisure budget line. a. Graph in general terms the budget line for each type of worker. b. Which type of worker is likely to work up to the point of the kink, and which type of worker is likely to choose a consumption-leisure bundle far away from the kink?
The absolute value of the slope of the consumption-leisure budget line is the after-tax wage, w. suppose some workers earn w for up to 40 hours of work each week and then earn 2w for any hours worked thereafter (called overtime). Other workers may earn w for up to 40hours of work each week then only earn .5w thereafter as working more than 40 hours requires getting a second job, which pays an hourly wage less than their primary job. Both types of workers experience a kink in their consumption-leisure budget line. a. Graph in general terms the budget line for each type of worker. b. Which type of worker is likely to work up to the point of the kink, and which type of worker is likely to choose a consumption-leisure bundle far away from the kink?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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The absolute value of the slope of the consumption-leisure budget line is the after-tax wage, w. suppose some workers earn w for up to 40 hours of work each week and then earn 2w for any hours worked thereafter (called overtime). Other workers may earn w for up to 40hours of work each week then only earn .5w thereafter as working more than 40 hours requires getting a second job, which pays an hourly wage less than their primary job. Both types of workers experience a kink in their consumption-leisure budget line.
a. Graph in general terms the budget line for each type of worker.
b. Which type of worker is likely to work up to the point of the kink, and which type of worker is likely to choose a consumption-leisure bundle far away from the kink?
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