Question: Assume that workers whose incomes are less than $10,000 currently pay no federal income taxes. Suppose a new government program guarantees each worker $5000, whether

Assume that workers whose incomes are less than $10,000 currently pay no federal income taxes. Suppose a new government program guarantees each worker $5000, whether or not he or she earns any income. For all earned income up to $10,000, the worker must pay a 50% tax. Draw the budget line facing the worker under this new program. How is the program likely to affect the labor supply curve of workers?

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Initially the first 10000 of income was untaxed We are not told what the tax rate was for incomes above 10000 so lets assume it was zero to make thing... View full answer

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