Question

Sam and Kim live in Coquitlam but work in Vancouver. They must commute to their place of work and back home during rush hours. Assume that there are 14 available hours in the day, that their wage rate is $25 per hour, and that they each have nonlabour income of $200 per day. The commute takes 2 hours each way (4 hours a day total), and it costs $80 in expenses for the round trip.

1. Let us say his boss agreed that Sam can work flexible hours and now Sam commutes before rush hours; his commute takes 1 hour each way (2 hours a day total). Everything else remains unchanged.

1. Draw Sam’s new budget line (potential income constraint) in a work-leisure diagram. Clearly show all the numbers that describe the constrain

Answer 1

Pls see table below and then the budget line. Note: cost of commute is likely to be lower in non-rush hour due to better fuel efficiency but I'm assuming it to be the same 80.

Realistically speaking, Sam won't work if he's going to for less than 3.2 hours since the salary from working 3.2 hours offsets his commute cost, and below that he loses money as well as time.

A	B	C	D	E = C-D	F = 25*D	G = 0 if D = 0, else 80	H	I = F+H-G
Available Hours for work	Hours for commute	Net available hours for work	Hours spent on work	Hours spent on leisure	Salary	Cost of commute	Other income	Net Income
14	2	12	0	12	0	0	200	200
14	2	12	1	11	25	80	200	145
14	2	12	2	10	50	80	200	170
14	2	12	3	9	75	80	200	195
14	2	12	4	8	100	80	200	220
14	2	12	5	7	125	80	200	245
14	2	12	6	6	150	80	200	270
14	2	12	7	5	175	80	200	295
14	2	12	8	4	200	80	200	320
14	2	12	9	3	225	80	200	345
14	2	12	10	2	250	80	200	370
14	2	12	11	1	275	80	200	395
14	2	12	12	0	300	80	200	420

The budget line, with net income on vertical axis and leisure hours on horizontal axis