Welfare Economics

Assume that Ava has a possibility to choose between hours of leisure and dollars in consumption. She can spend a total of 2000 hours per year on leisure.Before taxes are imposed, Ava enjoys an initial level of leisure of 900 hours and a level of consumption of C1=$13,750.

a.What is her hourly wage?

b.A flat tax of 30% is imposed on each dollar of wages earned.What is the effective after-tax hourly wage rate?

c.Draw a graph to show the budget constraints before and after this tax has been imposed.Make sure that all the important leisure and consumption points are included

on the graph, along with the slopes of the budget constraints.