Answer------
George Johnson earns $5 per hour in his job as a truffle sniffer. After allowing time for all of
the activities necessary for bodily upkeep, George has 80 hours per week to allocate between
leisure and labor. Sketch the budget constraints for George resulting from the following
government programs.
(a) There is no government subsidy or taxation of labor income. (Use blue ink on the graph
below.)
b) All individuals receive
a lump-sum payment of
$100 per week from the
government. There is no
tax on the _rst $100 per
week of labor income.
But all labor income
above $100 per week is
subject to a 50% income
tax. (Use red ink on the
graph above.)
c) If an individual is not
working, he receives a
payment of $100. If he
works he does not receive
the $100, and all wages are
subject to a 50% income
tax. (Use blue ink on the
graph below.)
(d) The same conditions as
George Johnson earns $5 per hour in his job as a truffle sniffer. After allowing time for all of
the activities necessary for bodily upkeep, George has 80 hours per week to allocate between
leisure and labor. Sketch the budget constraints for George resulting from the following
government programs.
(a) There is no government subsidy or taxation of labor income. (Use blue ink on the graph
below.)
b) All individuals receive
a lump-sum payment of
$100 per week from the
government. There is no
tax on the _rst $100 per
week of labor income.
But all labor income
above $100 per week is
subject to a 50% income
tax. (Use red ink on the
graph above.)
c) If an individual is not
working, he receives a
payment of $100. If he
works he does not receive
the $100, and all wages are
subject to a 50% income
tax. (Use blue ink on the
graph below.)
(d) The same conditions as
