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.
-If the tax rate increases with an increase in income, the income tax structure is said to be _____.

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.
-If the tax rate increases with an increase in income, the income tax structure is said to be _____.

Quizplus · Accepted Answer

If the tax rate increases with an increase in income, then the income tax structure is said to be progressive. The individual will choose a point on the highest feasible indifference curve (I₃) that is tangent to the highest feasible income constraint (AB) in order to maximize their utility. This point represents the best choice for the individual, given the income-leisure tradeoff and the progressive tax structure.

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