Carlos has 168 hours per week to divide between labour and leisure. For his job, Carlos is allowed to work up to 60 hours a week earning a wage of $25, but faces a payroll tax of 20%. Given these constraints, Carlos chooses to work 40 hours per week. Graph the budget constraint and indicate the optimal choice, make sure to label all important points.
(a)
Carlos has 168 hours per week to divide between labour and leisure. For his job, Carlos is allowed to work up to 60 hours a week earning a wage of $25, but faces a payroll tax of 20%. Given these constraints, Carlos chooses to work 40 hours per week. Graph the budget constraint and indicate the optimal choice, make sure to label all important points.
(b)
The government proposes a universal basic income whereby everyone is given $200 a week, which is financed by increasing the payroll tax to 40%. Add this new budget constraint to your diagram from (a). Be sure to show all your work/calculations, and label all important points.
Is this likely to increase or decrease labour supply for Carlos? Carefully explain.
(It is important that you carefully draw your diagram for this question, and compare it to the one in (a)).
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images
