(Answered) Once upon a time there was a country that had no taxes

Management Studies

Once upon a time there was a country that had no taxes. viewing this as unacceptable for a modern state, the king decreed the following tax system: all people with annual earnings under $30k per year will pay no tax. All people with annual earnings over $30k will pay a tax of 50% on earnings greater than $30k.

Now consider a lawyer with a wage of $20 per hour.

Draw a goods-leisure diagram of how this new tax system changes the lawye'rs budget constraint.

What would be the predicted effect of the new tax system on the labor supply of a lawyer who works more than 2000 hours per year? (Assume lawyers have a choice over hours, leisure is a normal good, indifference curves are a normal shape, ceteris paribus)

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