practice_quiz2_2 - Name Quiz 2 Elements of...

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Name:______________________ Quiz 2 Elements of Microeconomics (Spring 2011) 1. [20 points] John Doe is a worker at a factory. His wage is $1 per hour. He has no unearned income to start with. Every day he chooses between leisure and consumption. a. [3] Draw and explain Jo hn’s budget constraint. Label all intercepts and slopes. b. [5] John just received notice that he owed the government $5 (this is a special tax levied on people with green eyes). Furthermore, there is also a 50% income tax on all hours worked past 8 hours (in other words, first 8 hours are exempt from this tax). Draw John’s budget constraint under these conditions.
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c. John’s boss wants him to w ork more than 8 hours per day. Suppose John has no unearned income and there are no taxes he needs to pay. John’s boss is considering a straight wage increase from $1/hour to $2/hour, and an alternative overtime pay under which John gets double the basic $1/hour pay for all time over 8 hours per day.
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