George Johnson earns $5 per hour in his job as a truffle sniffer. After allowing time for all of the activities necessary for bodily upkeep, George has 80 hours per week to allocate between leisure and labor. Sketch the budget constraints for George resulting from the following government programs.
(a) There is no government subsidy or taxation of labor income. (Use blue ink on the graph below.)
(b) All individuals receive a lump sum payment of $100 per week from the government. There is no tax on the first $100 per week of labor income. But all labor income above $100 per week is subject to a 50% income tax.
(Use red ink on the graph above.)
(c) If an individual is not working, he receives a payment of $100. If he works he does not receive the $100, and all wages are subject to a 50% income tax. (Use blue ink on the graph below.)
(d) The same conditions as in Part (c) apply, except that the first 20 hours of labor are exempt from the tax. (Use red ink on the graph above.)
(e) All wages are taxed at 50%, but as an incentive to encourage work, the government gives a payment of $100 to anyone who works more than 20 hours a week. (Use blue ink on the graph below.)