Question: 1. Using the analysis developed in Chapter 4, try to show the size of the income and substitution effects when moving from point x to

1. Using the analysis developed in Chapter 4, try to show the size of the income and substitution effects when moving from point x to point y and from point y to point z.

2. Illustrate on an indifference diagram the effect on the hours a person works of

(a) a cut in the rate of income tax;

(b) the introduction of a weekly tax credit, worth £30, to all adults irrespective of income.

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