Find relative size of the income and substituion effects


Jake has a before tax wage of $10 an pays an income tax of 20 percent, so t=.20. Show his budget constraint for work and leisure for one day. Suppose Jake's before-tax wage decreases to $8, but tax rate remains constant; however,in turns out thatJake still consumes the same amount of leisure. Show this on graph. So these results seem reasonable? What do the results tell you about the relative sixe of the income and substituion effects for leisure fo Jake?

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Microeconomics: Find relative size of the income and substituion effects
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