(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Description)
The graph from the previous part is shown.
The following text is written above the graph:
C. Will Tamara work more or less then before the changes to the tax scheme? Why?
(Speaker)
As we found in the last part, under the new tax structure Tamara works more and consumes less leisure. This is because the tax changes in effect have isolated just the substitution effect.
As a result of the cut in the tax rate, her net wage rate, the opportunity cost of leisure has increased. This has both the substitution effect and an income effect. Tamara should consume less leisure by the substitution effect and more leisure by the income effect. However, the cut in the tax exempt amount has made Tamara poorer by an amount that leaves her equally as well of as she was before the tax changes. That is, the cut in the tax exempt amount has just offset the income effect of the increase in her net wage rate. So the only effect at work here is the substitution effect, and the substitution effect says, unambiguously, that Tamara should consume less leisure and work more.