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Suppose Andrea has preferences over consumption (C) and leisure (l). Suppose also her time constraint is...

Suppose Andrea has preferences over consumption (C) and leisure (l). Suppose also her time constraint is such that l + h = h¯, where h is the number of hours worked and h¯ is the time available. Suppose also h¯ = 8. If she works she receives an hourly wage (?) of 10.

(a) (5 points) Suppose first her income depends only on the number of hours worked. Write and plot her budget constraint. What is the slope of her budget constraint? Does it have a kink?

(b) (5 points) Now suppose she also receive an extra income (?) from a friend that equals 5. Write and plot her budget constraint. What is the slope? Does it have a kink? Plot in a different figure her budget constraint under case (a) and case (b). Also, what is the maximum amount of consumption she could have under case (a) and (b)?

(c) (5 points) Finally, suppose she has to pay a lump-sum tax of 3. Write and plot her budget constraint. What is the slope? Does it have a kink? What is the maximum amount of consumption she could have? What is the maximum amount of leisure she could have?

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