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Dr Johnson receives a lump sum payment of $150 per week
Dr Johnson receives a lump sum payment of $150 per week. Suppose that the first $150 per week of labor income is untaxed but all labor income above $150 is taxed at a rate of 10%.
a .Dr. Johnson’s budget line has a kink in it at the point where he takes 60 units of leisure.
b.Dr. Johnson’s budget line has a kink where his income is $300 and his leisure is 50 units.
c.Dr. Johnson’s budget line has slope -4.50 everywhere.
d.Dr. Johnson’s budget line has no kinks in the part of it that corresponds to a positive labor supply.
e.Dr. Johnson’s budget line has a piece that is a horizontal straight line.
f.none of these choices are correct
Expert Solution
d. Dr. Johnson's budget line has no kinks in the part of it that corresponds to a positive labor supply.
This is because kink in budget line is caused by tax and we are provided that income upto $150 is untaxed and above $150 is taxed at a rate of 10%..
Since income of Dr. Johnson is $150/week. So there is no tax and hence there will be no kink in the part of budget line in case of positive labor supply.
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