A worker receives a wage rate w and has L hours of leisure every day (the total endowment of hours is 24 hours per day). The government gives a subsidy of rate 5 of his income. The worker spends all his income. 1. Write a budget constraint of this individual and plot it. 2. Display graphically what is the optimal consumption-leisure choice for this worker. 3. Imagine that instead, the government imposes income tax at rate T. What is the new budget constraint? Display on the same picture. In the new optimum is the consumption higher? Explain the answer in terms of wealth and substitution effects