4. Consider the simplified model with proportional taxation, where consumer's budget constraint is C = w(1 t)(h l) + ; production function is Y = zN = z(h 1). [20] (a) Draw the graph showing PPF (PPF), consumer's BC (BC), equilibrium consumption (C) and leisure (1), equilibrium production (Y) and labor (N), indifference curve (1). [4 pts.] (b) Now suppose that G increases from G to G (let the increase be small for the ease of drawing. Draw new PPF (PPF). [1 pt.] (c) What is income and substitution effects here? Explain intuitively. [3 pts.] (d) Suppose that the substitution effect dominates the income effect. Draw new consumer's BC (BC), equilibrium consumption (C) and leisure (1), equilibrium production (Y) and labor (N), indifference curve (1). [8 pts.] 4. Consider the simplified model with proportional taxation, where consumer's budget constraint is C = w(1 t)(h l) + ; production function is Y = zN = z(h 1). [20] (a) Draw the graph showing PPF (PPF), consumer's BC (BC), equilibrium consumption (C) and leisure (1), equilibrium production (Y) and labor (N), indifference curve (1). [4 pts.] (b) Now suppose that G increases from G to G (let the increase be small for the ease of drawing. Draw new PPF (PPF). [1 pt.] (c) What is income and substitution effects here? Explain intuitively. [3 pts.] (d) Suppose that the substitution effect dominates the income effect. Draw new consumer's BC (BC), equilibrium consumption (C) and leisure (1), equilibrium production (Y) and labor (N), indifference curve (1). [8 pts.]