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Suppose That the Total Number of Hours (T)is 720 and the Wage

question 15

Essay

Suppose that the total number of hours (T)is 720 and the wage rate is $10.Suppose further that all income is spent on consumption,so that the vertical axis is also total consumption.
(A)Sketch this graph.
(B)Sketch the graph if a 5% consumption tax is imposed.
(C)Can you say conclusively that a consumption tax will lower hours worked?


Definitions:

Equipment Lease Costs

The expense incurred from leasing or renting equipment instead of purchasing it, often operational in nature.

Selling Price Per Unit

The amount of money charged to the customer for one unit of a product or service.

Contribution Margin

The difference between sales revenue and variable costs, used to cover fixed costs and generate profit.

Relevant Range

The range of activity within which the assumptions about variable and fixed cost behavior are valid.

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