Budget line using neoclassical model of labor leisure

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Mary has 100 hours per week available to spend on work and leisure. She works 40 hours per week at a pretax wage of $25 per hour, but faces a 20% payroll tax. Mary also receives $20 interest per week from her saving account. (a) Draw Mary’s Budget line using the neoclassical model of labor-leisure choice. Be sure to label all axises. For the budget line, please also label the numbers on the vertical and horizontal axis. (b) Identify the utility maximizing point in your figure. Label it point A. (c) What is her level of consumption and leisure at the utility maximizing point? Provide detailed steps to show how you obtained the answer. (d) Suppose her wage rate is raised from $25 to $30 per hour, and she decides to work 42 hours per week, what is her labor supply elasticity? Show your work.

Reference no: EM131393746

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