Question

**Ira’s only source of income is from working. He can work
as many hours per day as he wishes (up to a maximum of 24 hours) at
a fixed wage rate of $10 / hour.**

**a. Initially, assume that there is no income
tax.**

** Draw Ira’s budget constraint.**

**b. Now suppose, that the government introduces a tax
rate of 50 cents in the dollar. Suppose that leisure is a normal
good that tax ends up reducing Ira’s hours worked. Show in your
diagram the effect of the tax on Ira’s budget constraint and
possible indifference curves for his initial and final
consumption.**

**c. Now suppose, that the government decides to make the
first $40 per day (or 4 hours worked) tax-free. Beyond this point,
income is tax at a rate of 50 cents in the dollar. On a separate
diagram, draw Ira’s budget constraint. Assume that Ira chooses to
work 8 hours per day.**

**How much tax would the government collect?**

**d. Now suppose, that the government replaces the tax
analyzed in part (c) with a 25 percent tax rate on all
income.**

**Which tax would Ira prefer?**

**Which would raise more tax revenue?**

Answer #1

Ira’s only source of income is from working. He can work as many
hours per day as he wishes (up to a maximum of 24 hours) at a fixed
wage rate of $10 / hour.
b. Suppose, that the government introduces a tax rate of 50
cents in the dollar. Suppose that leisure is a normal good that tax
ends up reducing Ira’s hours worked. Show in your diagram the
effect of the tax on Ira’s budget constraint and possible...

Suppose you have 24
hours per day that you can allocate between leisure and
working.
(i)
Draw the budget constraint between
“leisure hours” on the horizontal axis and “wage income” on the
vertical when the wage rate is $40 per hour. Mark an optimum point
A that is meaningful. Draw a new budget constraint when the wage
rate falls to $30 per hour. Show a new optimum point B.
(ii)
On your indifference curve diagram,
decompose the effect of the...

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earned. Suppose the...

Lisa can gain 6 dollars per hour if
she goes to work. She has 16 hours of time in a day which can be
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gain 20 dollars as non-labor income daily
What is the graphic of Lisa’s consumption-leisure budget
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(b) Now, let’s introduce a TANF program. Consider an income
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Santi derives utility from the hours of leisure (l) and from the
amount of goods (c) he consumes. In order to maximize utility, he
needs to allocate the 24 hours in the day between leisure hours (l)
and work hours (h). Santi has a Cobb-Douglas utility function, u(c,
l) = c 2/3 l 1/3 . Assume that all hours not spent working are
leisure hours, i.e, h + l = 24. The price of a good is equal to 1...

Santi derives utility from the hours of leisure (l) and from the
amount of goods (c) he consumes. In order to maximize utility, he
needs to allocate the 24 hours in the day between leisure hours (l)
and work hours (h). Santi has a Cobb-Douglas utility function,
u(c,l) = c2/3l1/3. Assume that all hours not spent working are
leisure hours, i.e, h + l = 24. The price of a good is equal to 1
and the price of leisure...

Each day, Luke must decide his leisure hours, L, and his
consumption, C. His utility function is given by the following
equation
?(?, ?) = (? − 30)(? − 12).
Luke receives $50 welfare payment per day. Show all the steps,
with the definition of every new notation used in the steps.
a) Suppose that Luke’s hourly wage is $5. Find Luke’s daily
budget constraint equation and graph it. (5 pts.)
b) If Luke’s wage is $5 per hour worked,...

Solving Moral Hazard by Lowering the Benefit Reduction
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An individual can earn $15 per hour if he or she works. Assume
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a. The government guarantees $900 per month in income and
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Assume the gross wage of w=$10 per hour and gross non-wage
income YN = $5000 per year. Assume a maximum of 6,000 hours of
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Draw the budget constraint under each of the following taxes and
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1. A welfare program that pays $8,000 per year if the person
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