Consider Toms labor supply decision. Tom can earn $15 per hour, but he faces a 20% tax rate and pays $4 per hour in child care expenses for each hour he works.
a. What is Tom's 'real' hourly wage rate?
b. How much will it be if he had 128 hours of leisure (= worked 40 hours)?
c. Graph Tom’s weekly time budget constraint.
d. Tom chooses to work 40 hours a week. On the above graph, draw Tom's indifference curves between leisure and money so that this is his optimal labor supply choice