Deborah has 80 hours per week available for work and leisure. Her current wage rate is $25 per hour. Deborah has $400 of rental income every week.

a- Construct a proper diagram to describe Deborah’s choice of working 40 hours per week. Calculate Deborah’s maximum possible income and optimal income, and show them in the diagram.

b- Suppose Deborah recently moved into her boyfriend’s place. She shares the household expenses and is “taxed” 50% of her wage income. Draw another diagram to compare Deborah’s choice in Part a) and a new labor supply decision of working 50 hours per week due to the “tax”. Clearly label out the income effect, substitution effect and total effect in the diagram.