00:01
All right, so starting from a diagram like this one shown, consider what happened to cream's optimal choice of consumption and working time if the government starts to levy a 10 % income tax and his wage is $45 an hour or euros an hour.
00:12
Based on this information, read the following statements and select the correct one.
00:15
The answer could be multiple.
00:16
So i'll just analyze this question and break it down based on the economic theory behind labor leisure choices and the effects of income tax.
00:23
And the graph displays the consumption leisure tradeoff for karim who earns 45 euros an hour when a 10 % income tax is in point.
00:30
His effective wage will drop from 45 to 40 .5 an hour.
00:34
This would shift the budget constraint, reducing his consumption for any given amount of free time, since a portion of his earnings will go to taxes.
00:41
So here's just a breakdown of the statements.
00:44
All right, so starting with the first option, the opportunity cost of free time would fall, so he would take more free time...