Answered: On the following graph, show the effect…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

8. Problems and Applications Q8 Consider your decision about how many hours to work. The following graph shows your budget constraint assuming that you pay no taxes on your income. On the following graph, show the effect of a 15 percent income tax on your budget constraint. Deborah is awake for 100 hours per week. Use the green line (triangle symbol) to draw Deborah's budget constraint if she earns $12 per hour. Then use the blue line (circle symbol) to draw her budget constraint if she earns $16 per hour. Finally, use the purple line (diamond symbol) to draw her budget constraint if she earns $20 per hour.

Leisure
BC
Consumption
BC
In order for the number of hours worked to remain unchanged, the income effect from the income tax must be
effect.
the same as
greater than
less than
the substitution

Consumption (Dollars)
2000
1800
1600
1400
1200
1000
800
600
400
200
0
0
10
20
30
40 50 60
Leisure (Hours)
70 80
90 100
Wage of $12 per hour
Wage of $16 per hour
Wage of $20 per hour
?

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