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Suppose an employee works 42 hours a week for a salary of SEK 8 per hour and that he is taxed at a proportional tax of ten pe

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Answer #1

i. If the worker works twice as many hours/week, in that case: In this case his earning will be SEK 672 and since it is less than sek 1000, he will not be taxed which maximises his economic utility and earning. This behaviour is compatible with the economic theory if the worker's level of utility and satisfaction is dependent on his salary and not leisure hours.

ii. The worker works more hours: In this case, again his utility will increase according to pay and will also depend on it if increase in working hours doesnt affect his utility levels.

iii. Less than 42 hours: If he works less than 42 hours, in that case despite increase in leisure hours, his pay will decrease and ultimately reduce his utility

iv. If he works exactly 42 hours, then his utility will increase after tax abolishment.

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