9. The country of Adventureland has two citizens, Bill and Ted. Bill has a private legal business. He earns $50 per hour. At a tax rate of 0%, Bill works 20 hours. At a 25% tax rate he works only 16 hours, and at a 40% tax rate he works only 8 hours per week. Ted works a manufacturing job. He works 20 hours per week and earns $6 per hour, regardless of the tax rate. The government is considering imposing an income tax of either 25% or 40% on Bill and using the revenues to make transfer payments to Ted. The accompanying table summarizes the three possible policies. Does either tax policy raise social welfare? Are either of the policies obviously less than optimal? Explain your answers.

Effects of Redistributive Policies in Adventureland 0% 25% 40%

Bill’s pre -tax income $1000 $800 $400 Bill’s taxes 0 $200 $160 Bill’s net income $1000 $600 $240 Ted’s pre -tax income $120 $120 $120 Ted’s transfer payment 0 $200 $160 Ted’s net income $120 $320 $280