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Welfare Economics Assume that Ava has a possibility to choose between hours of leisure and dollars in consumption. She can spend a total of 2000...
Welfare Economics
Assume that Ava has a possibility to choose between hours of leisure and dollars in consumption. She can spend a total of 2000 hours per year on leisure. Before taxes are imposed, Ava enjoys an initial level of leisure of 900 hours and a level of consumption of C1=$13,750.
a. What is her hourly wage?
b. A flat tax of 30% is imposed on each dollar of wages earned. What is the effective after-tax hourly wage rate?
c. Draw a graph to show the budget constraints before and after this tax has been imposed. Make sure that all the important leisure and consumption points are included
