The figure given below shows the income-leisure trade off of an individual. Figure 15.6 AB and AC: Income constraints of the individual
I₁, I₂, and I₃ 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 15.6?

Question

The figure given below shows the income-leisure trade off of an individual. Figure 15.6

AB and AC: Income constraints of the individual
I₁, I₂, and I₃ 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 15.6?

Quizplus · Accepted Answer

An inward rotation of the income constraint indicates a decrease in the individual's disposable income. An increase in income or an increase in demand for labor would shift the income constraint outward, not inward. A decrease in the opportunity cost of labor or a decrease in the supply of labor would increase the individual's income and shift the income constraint outward. The only viable option is an increase in the income tax rate, which would reduce the individual's disposable income and cause the inward rotation of the income constraint from AB to AC.

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