# Budget Constraints. To answer this question, consider the choice about hours of work PER WEEK.

1. Budget Constraints.To answer this question, consider the choice about hours of work PER WEEK. You can assume total possible hours in the week is 7 days times 16 hours per day, for a total of 112 hours.a. Draw the budget constraint for a worker who has no unearned income, and earns \$10 per hour. Identify the slope and intercept of the budget line.b. Now suppose the worker has \$60 per week in nonlabor income. The income is constant and does not depend on how many hours she worked.c. Building on (b), suppose that the worker can earn overtime for each hour above 40 hours worked per week. Her base pay remains at \$10/hour, but she earns one and one-half time for each hour beyond 40 hours. Draw the new budget constraint.d. Going back to (b) (and with no overtime), suppose that the \$60 per week is a guaranteed payment only if total earnings are \$200 or less per week. When earnings go over \$200, the \$60 is lost. Draw the new budget constraint.2. When the Fair Labor Standards Act began to mandate paying 50 percent more for overtime work, many employers tried to avoid it by cutting hourly pay, so that total pay and hours remained the same.a. Assuming that this 50 percent overtime-pay premium is newly required for all work beyond eight hours per day, draw a budget constraint that pictures a strategy of cutting hourly pay so that, at the original hours of work, total earnings remain the same.b. Suppose that an employer initially paid \$8 per hour and had a 10-hour workday. What hourly base wage will the employer offer so that the total pay for a 10-hour workday will stay the same?c. Will employees who used to work 10 hours per day want to work more or fewer than 10 hours in the new environment (which includes the new wage rate and the mandatedovertime premium)?

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