Question
Jim, a resident of Econoland, currently works 20 hours a week and earns an annual income of $60,000. The following table shows income tax rates
Jim, a resident of Econoland, currently works 20 hours a week and earns an annual income of $60,000. The following table shows income tax rates in Econoland.
Income | Tax Rate |
up to $60,000 | 10% |
$60,000-$90,000 | 20% |
over $90,000 | 30% |
After paying taxes, Jim receives ($42,000/$48,000/$54,000) per year.
If Jim works an additional 10 hours a week (30 hours a week total), his annual income will be $90,000. After paying income taxes, Jim will receive ($75,000/$78,000/$81,000) per year. In other words, by working an additional 10 hours per week, Jim will receive an additional ($21,000/$24,000/$27,000).
If Jim works 10 more hours in a week (40 hours a week total), his annual income will further increase to $120,000. After paying income taxes, Jim will receive ($99,000/$102,000/$105,000)per year. In other words, by working 10 more hours per week, Jim will receive ($21,000/$24,000/$27,000) more than what he would receive if he works only 30 hours a week.
As Jim works more, the additional amount he receives from working 10 more hours (increases/decreases/does not change) which means his cost of leisure (increases/decreases/does not change)
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