Consider a person who can work up to 80 hours each week at a pre-tax wage of $20 per hour but faces a constant 20% payroll tax. Under these conditions, the worker maximizes her utility by choosing to work 50 hours each week. The government prposes a negative income tax whereby everyone is given $300 each week and anyone can supplement her income further by working. To pay for negative income tax, the payroll tax rate will be increased to 50%.
(a) On a single graph, draw the worker`s original budget line and her budget line under the negative income tax
