Bundle correspond to kink of consumer budget constraint

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Reference no: EM13999106

A consumer may consume food x and hours of leisure time h. The price of one unit of food is $1. Initially, the consumer has no money and 24 hours of spare time that she may devote either to work, or to leisure. The consumer earns wage rate s per hour for the first five hours of work, and s 0 per hour for additional overtime hours. She also faces a tax rate of t percent on labor income earned above amount M. Draw the consumer’s budget set for the following two cases of parameter values:

1. s = $6, s0 = $8, t = 30%, M = $70;

2. s = $5, s0 = $7, t = 40%, M = $20.

Which bundle(s) correspond to kink(s) of the consumer budget constraint?

Reference no: EM13999106

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