Question

Tom earns $15/hour for up to 40 hours.

*After 40 hours, he gets $30/hr.

*He faces a 20% tax rate.

*Childcare costs $4/hr, but he receives $80/wk in child support. Assume that child support payments are not taxed.

*There are 168 hrs/week (24 x 7 = 168)

*Draw the budget constraint.

Nonwage income = $80/week.

Taxes =

15-.20(15)=15-3=12 x 40 hours = 480

30-.20(30)=24/hour.

Childcare=

<40 hrs/week: 12-4= $8/hour

>40 hrs/week: 24-4= $20/hour

Answer 1

If Tom doesn't works, he leisure for 168 hours and consumes $ 80.

If he works up to 40 hours, his after tax and after child care wage equals (80% of $ 15)-$4 = $ 8 per hour. Therefore if he works for 40 hours then he has leisure of 128 hours and consumes $ 80 + $8*40 = $ 400

When he works for 168 hours. Then he has no leisure time. His wage after tax and after child care wage equals = (80% of $30)-$4 = $ 20. His consumption = $ 80 + $8*40 + $ 20*128 = $ 2,960.

Please contact before rating up will be obliged to you for your generous support thank you.