Income and substitution effects

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Reference no: EM134046212

Question

Suppose that Bill starts to be taxed at a rate of 30% of his wage income. Using the same diagram as (a), show how this would influence his labour supply. Show one possible outcome, and break the total change in hours up between income and substitution effects. What is the income effect capturing here? What about the substitution effect?

Reference no: EM134046212

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