Draw his daily budget constraint

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Suppose that Agostino's hourly wage is $30 per hour, his rental property yields $120 per day, and he has 16 hours in a day to allocate between leisure and work.

a) Draw his daily budget constraint. How much can Agostino consume if he enjoys 16 hours of leisure?

b) Suppose that the government imposes a 20% income tax. What is his budget constraint now? In the same diagram, using a dashed line, draw the new budget constraint.

c) What happens if the government sets the tax rate to zero on unearned income and on the first $120 of his earnings, but imposes a 20% tax for each dollar earned in excess of $120? In a new diagram, draw his original (from part (a)) and his new budget constraints.

Reference no: EM13734363

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