Reference no: EM131593375

1.   Suppose that a subsidy plan is introduced  for low-income workers. Under the plan an unmarried worker with two children would receive a tax credit of 30% for income less than or  equal to $10,000. In addition, the maximum tax credit would be maintained until income reaches $20,000 after  which it is taxed away at a rate of 20%. In addition, you are told that this individual has a maximum of 4,000 hours of leisure per year and earns a wage of $15 per hour.

a) Calculate the level of income at which there is no tax credit. Explain.

b) Illustrate diagrammatically the three different "zones" pertaining to this program.

2. Suppose that a worker is currently earning a wage of $20 per hour and has a maximum of 4,000 hours of leisure per year.

a) Draw this individual's budget line indicating both intercepts

b) Now suppose that the federal government introduces a guaranteed income plan which provides for a sum of $15,000 for an adult earning between $0 and $30,000, after which it is taxed away at a rate of 50%.

I. Calculate the level of income at which there is no income support from the government

II. Illustrate the two different "zones" pertaining to this program.

If the worker earns an income of $50,000, how much of the guaranteed income would he get to keep and how many hours of leisure would he have? Illustrate these values in your diagram.