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  3. 3 tims job pays him 10hour the current income tax...

Question: 3 tims job pays him 10hour the current income tax...

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3, Tims Job pays him $10/hour. The current income tax rate is 25% and he chooses to work for 10 hours. a. Draw Tims Daily Budget constraint between Consumption (S) and Leisure (Hours). Put Leisure on the x-axis b. Show Tims choice an the budget constraint. c. How much tax does Tim currently pay? d. The state chooses to eliminate the income tax, but institutes a head tax where everyone must pay a fixed sum of money to the state no matter how much they work. The fixed sum turns out to be the exact same amount of tax that Tim was paying before (part c). Draw Tims new budget constraint on the same diagram. Where do the two lines cross? e. Kendra will earn $80,000 in period one (today) and $120,000 in period 2 (tomorrow). Kendra can save money at 5%, but borrow at 10%. In addition if Kendra borrows she must pay a fixed sum of $1,000. Draw Kendras budget line (show all the important points and give their values). 4.
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