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Jordan currently earns $20 an hour and has non-labor income of $100 per day. There is a tax

of 20% on all wages earned and zero tax on non-labor income. Jordan currently chooses to work

8 hours per day. Assume the maximum hours an individual can work is 16 hours per day.

a. Illustrate Jordan's budget constraint and his optimal choice of consumption/leisure. Clearly

label all relevant points, including the intercepts, on your graph.

b. The government repeals the wage tax and replaces it with a 20% tax on non-labor income.

Illustrate the new budget constraint, putting it on the same graph that you drew for part (a) and

labeling the new intercepts.

c. Will Jordan choose to work more or fewer hours given the change described in part (b) as

compared with the situation in (a)? Explain, and clearly state any assumptions you are making.