5. Suppose the wage is 80 per hour and that the consumer has 100 hours H to work with. Suppose that the MRS is given by in: What will 1 the consumer's choices of c and I be. Repeat with an upper bound of 10 hours. Repeat both parts with a 10% tax rate for all income levels. Suppose that the tax rate has two brackets so that income from hours above H is taxed at 20 percent. How does the solution change? Suppose that consumers must instead pay a lump sum tax that raises the same tax revenues as the one listed above. How will outcomes change?

5. Suppose the wage is 80 per hour and that the consumer has 100 hours H to work with. Suppose that the MRS is given by in: What will 1 the consumer's choices of c and I be. Repeat with an upper bound of 10 hours. Repeat both parts with a 10% tax rate for all income levels. Suppose that the tax rate has two brackets so that income from hours above H is taxed at 20 percent. How does the solution change? Suppose that consumers must instead pay a lump sum tax that raises the same tax revenues as the one listed above. How will outcomes change?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter15: Poverty And Economic Inequality

Section: Chapter Questions

Problem 12SCQ: Which set of policies is more likely to cause a tradeoff between economic output and equality:...

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Imagine that the government reworks the welfare policy that was affecting Jonathan in question 1, so that for each dollar someone like Jonathan earns at work, his government benefits diminish by only 30 cents. Reconstruct the table from question 1 to account for this change in policy. Draw Jonathans labor-leisure opportunity sets, both for before this welfare program is enacted and after it is enacted.
Which set of policies is more likely to cause a tradeoff between economic output and equality: policies of redistribution policies aimed at the ladder of opportunity? Explain how the production possibility frontier tradeoff between economic equality and output might look in each case.
Suppose the wage is 80 per hour and that the consumer has 100 hours H to work with. Suppose that the MRS is given by c/(l−10) . What will the consumer’s choices of c and l be. Repeat with an upper bound of 10 hours. Repeat both parts with a 10% tax rate for all income levels. Suppose that the tax rate has two brackets so that income from hours above (1/5)H is taxed at 20 percent. How does the solution change? Suppose that consumers must instead pay a lump sum tax that raises the same tax revenues as the one listed above. How will outcomes change?
(Please explain with graphic) Suppose that a consumer cannot vary hours of work as he or she chooses. In particular, he or she must choose between working q hours and not working at all, where q > 0. Suppose that dividend income is zero, and that the consumer pays a tax T if he or she works, and receives a benefit b when not working, interpreted as an unemployment insurance payment. a. If the wage rate increases, how does this affect the consumer’s hours of work? What does this have to say about what we would observe about the behavior of actual consumers when wages change? Explained also with the graph b. Suppose that the unemployment insurance benefit increases. How will this affect hours of work? Explain the implications of this for unemployment insurance programs. Explained also with the graph
One proposal for reforming the welfare system is to create a negative income tax. Under the negative income tax, each person is entitled to a grant of G dollars permonth. For every dollar the person earns, the grant is reduced by t dollars. a. Suppose G = 200 and t = 0.40. Consider an individual whose hourly wage = $10. There are 30 days in a month, so the total allotment of T = 720. Sketch the budgetconstraint before and after the introduction of the negative income tax. b. Would people work more or less with the implementation of this system? c. What if t = 100%? Explain!
Assume that workers whoses are less than $8000 currently pay no federal income taxes. Suppose a new government program guarantees each worker $4000, whether or not he or she earns any income. For all earned income up to $8000, the worker must pay a 50- percent tax. Draw the budget line facing the worker under this new program. Using the line drawing tool, draw the new budget line facing a worker whose wage is such that his or her pre-tax earned income is less than $8000. Label this line 'BC2'.
A worker earns £15 pounds an hour and chooses to work six hours a day. The worker has noother source of income. For the question below, assume that the worker has “standard” Cobb-Douglas preferences. When considering wage changes, assume that the “income effect”outweighs the “substitution effect”. (a) Write down the worker’s budget constraint and then represent the worker’schoice in a suitably labelled graph. (b) The government gives the worker £80, but taxes the worker’s wage, such thattheir take-home wage is £10. Model this policy in a suitably labelled graph. Isthe worker better off (in terms of utility) after this policy? Note –there are arange of correct answers for the worker’s new hours/income. Choose one thatis consistent with the information given in the question.
When recording devices were first invented morethan 100 years ago, musicians could suddenly supplytheir music to large audiences at low cost. How doyou suppose this development affected the income ofthe best musicians? How do you suppose it affectedthe income of average musicians?
Suppose that a consumer can earn a higher wage rate for working overtime. That is, for the first q hours the consumer works, he or she receives a real wage rate of w1, and for hours worked more than q he or she receives w2, where w2 > w1 . Suppose that the consumer pays no taxes and receives no nonwage income, and he or she is free to choose hours of work. (a) Draw the consumer’s budget constraint, and show his or her optimal choice of consumption and leisure. (b) Show that the consumer would never work q hours, or anything very close to q hours. Explain the intuition behind this. (c) Determine what happens if the overtime wage rate w2 increases. Explain your results in terms of income and substitution effects. You must consider the case of a worker who initially works overtime, and a worker who initially does not work overtime.
5. Suppose that John could work 365 days per year and could earn $200 per day for each day he worked. a. Draw his budget line with respect to his labor-leisure tradeoff b. Suppose that John chooses to work 200 days per year. Draw the appropriate indifference curve, and not his equilibrium wage income and labor-leisure choices c. Suppose that John’s wage rises to $210 per day. Show how his equilibrium level of income and labor-leisure will change. d. Suppose John is ill ten days per year. Draw the impact of this illness on the equilibrium above. How will it change his equilibrium allocation of earnings and labor vs. leisure?
Suppose that Congress passes a law requiringemployers to provide employees some benefit (suchas healthcare) that raises the cost of an employee by$4 per hour.a. What effect does this employer mandate haveon the demand for labor? (In answering this andthe following questions, be quantitative whenyou can.)b. If employees place a value on this benefit exactlyequal to its cost, what effect does this employermandate have on the supply of labor?c. If the wage can freely adjust to balance supply anddemand, how does this law affect the wage andthe level of employment? Are employers better orworse off? Are employees better or worse off?d. Suppose that, before the mandate, the wage in thismarket was $3 above the minimum wage. In thiscase, how does the employer mandate affect thewage, the level of employment, and the level ofunemployment?e. Now suppose that workers do not value themandated benefit at all. How does this alternativeassumption change your answers to parts(b) and (c)?
Consider a labor market in which workers are paid the minimum wage. When will it matter for tax incidence whether a payroll tax is imposed on workers or on employers? A.Normally, the statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the less-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are not legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will not be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees. B.Normally, the statutory imposition of a tax is relevant to the actual economic incidence because the party on whom legal…