LABOR ECONOMICS (LL+ACCESS)
8th Edition
ISBN: 9781264909339
Author: BORJAS
Publisher: MCG
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Chapter 8, Problem 9P
To determine
Determine how the given tax change policy affects the job mobility.
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Since the early 1970’s, the U.S. government has had a program called the Earned Income Tax Credit. A simplified version of this program works as follows: The government subsidizes your wages by paying you 50% in addition to what your employer paid you but the subsidy applies only to the first $60 (per day) you receive from your employer. If you earn more than $60 per day, the government gives you only the subsidy for the first $60 earned but nothing for anything additional you earn. For instance, if you earn $100 per day, the government would give you 50% of the first $60 you earned — or $30. Suppose you consider workers 1 and 2. Both can work up to 10 hours per day at a wage of $10 per hour, and after the policy is put in place you observe that worker 1 works 7 hours per day while worker 2 works 5 hours per day. Assume throughout that Leisure is a normal good.
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Susan is a single mother with three children. She is a cashier at a food market earning $7.75 per hour and works up to 2,000 hours per year. She is eligible for government benefits, so if she does not earn any income, she will receive a total of $17,050 per year. She can work and still receive government benefits, but for every $1 of income, her government stipend is $1 less.
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Suppose that initially a seller's "bottom line" asking price for a particular car is equal to $23,000. However, a new tax is instituted that will tax the seller in the amount of 10% on the sale. What is the seller's new "bottom line" after factoring in the new tax?
Chapter 8 Solutions
LABOR ECONOMICS (LL+ACCESS)
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