What is the workers effective hourly wage

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Draw a labor-leisure diagram for an individual who earns $50 an hour, has 4000 discretionary hours in a year, but chooses to work 2000 hours a year. Draw the corresponding indifference curve, and carefully label hours of labor, leisure, and earnings. Now consider a tax system that taxes earnings up to $50,000 at 20%, and all earnings above $50,000 at 30%. Draw the budget constraint after taxes for this worker. Draw an indifference curve corresponding to the new budget constraint. Label and describe income and substitution effects created by the income tax. At the chosen level of labor, leisure, and earnings, what is the workers effective hourly wage?

Reference no: EM131968449

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