The figure given below shows the income-leisure trade off of an individual.Figure 16.5
AB and AC: Income constraints of the individual
I 1 , I 2 , and I 3 curves show the income leisure choices of the individual.
-Which of the following factors is likely to be responsible for the inward rotation of the income constraint from AB to AC, in Figure 16.5?

Question

The figure given below shows the income-leisure trade off of an individual.Figure 16.5
  AB and AC: Income constraints of the individual
I 1 , I 2 , and I 3 curves show the income leisure choices of the individual.
-Which of the following factors is likely to be responsible for the inward rotation of the income constraint from AB to AC, in Figure 16.5?

Quizplus · Accepted Answer

An increase in the income tax rate will lead to a decrease in the disposable income of the individual, which will result in a leftward shift of the income constraint from AB to AC. This means that the individual will have less income to spend on both leisure and other goods and services. Hence, the inward rotation of the income constraint from AB to AC is likely due to an increase in the income tax rate.

The Figure Given Below Shows the Income-Leisure Trade Off of an Individual.Figure