Welfare Economics Assume that Ava has a possibility to choose between hours of leisure and dollars in consumption. She can spend a total of 2000…

Welfare Economics

Assume that Ava has a possibility to choose between hours of leisure and dollars in consumption. She can spend a total of 2000 hours per year on leisure. Before taxes are imposed, Ava enjoys an initial level of leisure of 900 hours and a level of consumption of C1=$13,750.

a.      What is her hourly wage?

b.     A flat tax of 30% is imposed on each dollar of wages earned. What is the effective after-tax hourly wage rate?

c.      Draw a graph to show the budget constraints before and after this tax has been imposed. Make sure that all the important leisure and consumption points are included

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