1 Taxes and consumption - leisure choice (Ch. 21) Suppose that you can earn $20 per hour before taxes and can workup to 168 hours per week. Consider two income tax rates, 5% and 10%. a. On the same diagram, sketch the twoweekly consumption - leisure budget constraints reflecting the two different tax rates. b. Sketch a set of representativeindifference curves such that the income effect of the tax increase outweighs the substitution effect. c. Draw a set ofrepresentative indifference curves such that the substitution effect of the tax increase outweighs the income effect.Taxes and consumption-leisure choice (Ch. 21)Suppose that you can earn $20 per hour before taxes and can work up to 168 hours perweek. Consider two income tax rates, 5% and 10%.a. On the same diagram, sketch the two weekly consumption-leisure budget constraintsreflecting the two different tax rates.b. Sketch a set of representative indifference curves such that the income effect of the taxincrease outweighs the substitution effect.c. Draw a set of representative indifference curves such that the substitution effect of thetax increase outweighs the income effect.

Detailed explanation:a. Consumption-leisure budget constraintThe consumption-leisure budget…

Answered: 1 Taxes and consumption - leisure…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.13P

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