Effect of  Taxation Willingness to Work

When a tax is imposed on a peel son, reduction in money income at his disposal will spur him on to put ill more work to increase his income. But if extra work is irksome, it will have the opposite effect. Tax may induce a man Vole more or work less. A  given above, arc the two price lines before and after tax inclusively.P is the point of equilibrium he fore  and  after tax. P Q is [he amount of the tax paid. As a result of the tax, output I been reduced from OM ‘to OM. Hence, this horticulture individual works before.

Worker will be better off. This point may be P’, a new equilibrium. Here leisure remains constant, but goods L increase. The worker has moved horizontally from P outwards. If P’ is on a higher slope of C it will mean more leisure and also more goods.

Other Uses of Indifference Curves

The use of indifference curve technique is not merely confined to the cases mentioned above. This technique is now being very widely used in almost the entire economic theory. We may just mention, among other uses, a few uses here, viz., measurement of consumer’s surplus, in the welfare economics, in theory of production (e.g., aquanauts), in international trade in the determination of gain from international exchange of goods, etc.