Suppose that you can earn $16 per hour before taxes and can work up to 80 hours per week
Problem 4
Suppose that you can earn $16 per hour before taxes and can work up to 80 hours per week. Consider two income tax rates, 10% and 20%.
a. On the same diagram, draw the two weekly consumption-leisure budget constraints reflecting the two different tax rates.
b.Draw a representative indifference curve mapping and identifying the optimal choice of leisure and working hours for the two tax rates.
c. With the indifference curve mapping that you drew in part 4b, did the subsitution effect or the weal effect dominate? Explain.
Hint
Accounts & Finance"The max weekly consumption in dollars without taax is $16 = $1280a) 10% tax reduces that amount to 0.9*1280 = $1152and 20% tax reduced it to 0.8*1280 = 1024"...
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