Suppose that you can earn $16 per hour before taxes and can work up to 80 hours per week. Consider two income tax rates, 10% and 20%. a. On the same diagram, draw the two weekly consumption-leisure budget constraints reflecting the two different tax rates. b. Draw a set of representative indifference curves such that the income effect of the tax increase outweighs the substitution effect. c. Draw a set of representative indifference curves such that the substitution effect of the tax increase outweighs the income effect.

Suppose that you can earn $16 per hour before taxes and can work up to 80 hours per week. Consider two income tax rates, 10% and 20%. a. On the same diagram, draw the two weekly consumption-leisure budget constraints reflecting the two different tax rates. b. Draw a set of representative indifference curves such that the income effect of the tax increase outweighs the substitution effect. c. Draw a set of representative indifference curves such that the substitution effect of the tax increase outweighs the income effect.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Question 4: Rose's preferences over food (x) and tobacco (y) are given by U=f(x)+by. The prices and…

A: Given information U=f(X)+bY Price of X (Px)=2 Price of Y (Py)=4 M=20 Given graph

Q: Assume you can work as many hours per day as you wish at £20 per hour, after tax. You have no other…

A: Optimal choice - It is the best combination of goods which will lead to the best satisfaction of the…

Q: If bananas are on the x-axis and apples are on the y-axis, then the marginal rate of substitution is…

A: Marginal Rate of Substitution:The marginal rate of substitution measures the rate at which a…

Q: Suppose Maryís utility function is given as U(X; Y ) = 2X + Y . Mary has and income of 60 dollars.…

A: An important concept that measures preferences over a set of a particular good and services in terms…

Q: A consumer has the utility function U = x^2/3 y^1/3 where MUx = 2y^1/3 / 3x^1/3 and MUy = X^2/3…

A: The utility is the power of a good to satisfy the wants of the human. The marginal utility shows the…

Q: Suppose that, from an initial individual consumer equilibrium position in the indifference…

A: An indifference curve (IC) is representative of the locus of all combinations of two goods or…

Q: Ann consumes two goods, r and y. Her utility function is given by: u(x, y) = (x+1)VJ. The price of a…

A: “Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: budget constraint

A: A budget constraint represents the diverse combinations of products and offerings that a consumer…

Q: YA 9 4 IC X Jimmy can consume goods X and Y. The graph above represents one of his indifference…

A: An indifference curve is a graphical representation that shows combinations of two goods providing a…

Q: IC E 9 4 Jimmy can consume goods X and Y. The graph above represents one of his indifference curves…

A: The amount of money a consumer has available for consumption is determined by income on the one…

Q: Suppose that the price of commodity Y is $2 per unit while the price of commodity X is $4 per unit…

A: A budget line shows all the combination of two goods that a consumer can purchase with his/her given…

Q: The blue budget line is for an income of $1000, P=$5 and Py=$10. At point A. the person is evenly…

A: The budget line shows the various combinations of two goods that can be purchased with the given…

Q: Suppose a consumer has preferences represented by the utility function U(X,Y) = X2Y Suppose PY = 1,…

A: A graphical representation of a combination of products that gives a consumer a similar level of…

Q: For two goods that I consume and I like both of them, say hamburger and Ice Latte, if hamburger is…

A: A uniform ad valorem sales tax is a type of tax that is levied on a product or service as a…

Q: Juan is currently working in a job that pays $25 an hour and he chooses to work 8 hours per day.…

A: Budget line The budget line depicts all possible combinations of the two commodities that can be…

Q: 2. Given the utility function U(x; y)=x²y³, and P-3 while P-2, with budget m=100. Measure the MRS,…

A: A utility function is a concept in economics that quantifies an individual's preferences or…

Q: Robin consumes two goods X and Y. His utility function is given by U(x, y) = x*y. The price of Good…

A: Optimal consumption bundle: The optimal consumption bundle is such that at that bundle the…

Q: Suppose initially that the price of X is $5, the price of Y is $10, and the consumer's income is…

A: Given information: Price of good X is $5 Price of good Y is $10 Consumer income is $100 Y is…

Q: 05- Income and Substitution Effects Question 2

A: The substitution effect would be 20 units of X. Explanation:Slutsky Substitution effect:The…

Q: By how much will the slope of Matt's budget constraint change if his income were to increase from…

A: In economics, a budget constraint represents all the combinations of goods and services that a…

Q: 3. Howard consumes only two goods. An economist has collected the following data on Howard's…

A: Paul Anthony Samuelson, an American economist, introduced the concept of revealed preference in 1938…

Concept explainers

Revealed Preferences and Budget Constraint Analysis

Revealed means “Let Out,” and Preference means “Choice”; Choice Reveals Preference.

Question

7. Suppose that you can earn $16 per hour before taxes and can work up to 80 hours per week.
Consider two income tax rates, 10% and 20%.
a. On the same diagram, draw the two weekly consumption-leisure budget constraints
reflecting the two different tax rates.
b. Draw a set of representative indifference curves such that the income effect of the tax
increase outweighs the substitution effect.
c. Draw a set of representative indifference curves such that the substitution effect of the
tax increase outweighs the income effect.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction:-

VIEW

Step 2: Solution:- a)

VIEW

Step 3: Part-b)

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Consider the market for Netflix Subscriptions. Show graphically and explain using economic intuition, what happens to the market price and quantity in each of the following 3. Bruno can spend his income on two different goods: smoothies and energy bars. For each of the following three situations, decide if the given consumption bundle is within Bruno’s consumption possibilities. Then decide if it lies on the budget line or not. a) Smoothies cost $2 each, and energy bars cost $3 each. Bruno has income of $60. He is considering a consumption bundle containing 15 smoothies and 10 energy bars.b) Smoothies cost $2 each, and energy bars cost $5 each. Bruno has income of $110. He is considering a consumption bundle containing 20 smoothies and 10 energy bars. c) Smoothies cost $3 each, and energy bars cost $10 each. Bruno has income of $50. He is considering a consumption bundle containing 10 smoothies and 3 energy bars. 4. In each of the following situations, describe the substitution…
O 0 (2 18 8. Normal and inferior goods Megan likes going to the ballpark to watch baseball, and she also is fond of going to the theater to listen to the symphony orchestra. The following diagram shows two of Megan's indifference curves for going to ballgames and symphonies. With Megan's initial budget constraint (BC), she chose to go to five symphonies and three baseball games per month (point X). Then her budget constraint shifted to BC, and she chose to go to four symphonies and six ballgames per month (point Y), SEOTING 2 4 SYMPHONIES BC
Suppose you are given the following information for a particular individualconsuming two goods, a and b: Pa = $5, Pb = $6, MUa = 100, MUb = 200, and income (m) = $200.a) Sketch the budget set. What is the slope of the Budget Line? What are maximal possibleconsumptions of a and b?b) What is the MRSab for the two goods?c) Is this person maximizing her utility? How can you tell?d) Should she consume more of good a or of b? Explain.e) Why can’t you tell what her optimal bundle is? Explain.
Mrs. Griffiths earns $5000 a week and spends her entire income on dresses and handbags, since these are the only two items that provide her utility. Furthermore, Mrs. Griffiths insists that for every dress she buys, she must also buy a handbag. Draw an indifference curve showing the optimum choice. Label the optimum as point A. What would be the marginal rate of substitution at the point that corresponds to the optimal consumption choice? Interpret the marginal rate of substitution
8. Fabian consumes X and Y and the following utility function represents his utility: U = 2XY a. With a utility function of U = 2XY, Fabian's MU, = 2Y and his MU, = 2x ,where MU is marginal utility. Write an equation for Fabian's marginal rate of substitution (MRS). b. Suppose Fabian's income is $120 and Px = S6 and Py-$2, where Px is the price of X and Py is the price of Y. Write an equation for Fabian's budget constraint. c. Write the equation that equates the slope of Fabian's budget constraint to the slope of Fabian's indifference curve: d. If Fabian is spending all of his income, how much X and how much Y will he choose? Use the equations you wrote in part's b and c to answer this question. e. What will Fabian's utility be with this combination of X and Y? f. Now suppose the price of X increases to P.=10. Write the equation that equates the slope of Fabian's budget constraint to the slope of Fabian's indifference curve. How will this change the optimal combination of X and Y? What…
George has a fixed income and can afford at most 7 units of X if he spends his entire income on X. Alternatively, if he spends all his income on Y, he can afford at most 6 units of Y. Draw George's budget line and an indifference curve such that George chooses to buy 4 pieces of X. Martha has the same income and faces the same prices, yet she chooses to buy 2 pieces of X. In equilibrium, what is George's subjective value of X in terms of Y? What is Martha's? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
John has $300 as income and he uses his income only for apples and bananas. If he uses his income only for apples, he can buy 10 pounds. If he uses his income only for bananas, he can buy 15 pounds. Which one is the correct formula for his budget constraint when X=pounds of apples, Y=pounds of bananas and the prices are per pound? a) More information is needed to answer the question. b) 15X + 10Y = 300 c) 10X + 15Y = 300 d) 20X + 30Y = 300 e) 30X + 20Y = 300