2. Practice on EITC, income and substation effectsSuppose that the government introduces an EITC such that for the first$8,000 in earnings, the government pays 50¢ per dollar on wages earned.For the next $3,000 of earnings, the credit is held constant at $4,000, andafter that point, the credit is reduced at a rate of 20¢ per dollar earned.When the credit reaches zero, there is no additional EITC.a. Draw the budget constraint that reflects this EITC for a worker whocan work up to 4,000 hours per year at an hourly wage of $10 perhour.b. If this worker works for 2000 hours a year before the program isintroduced, what will be the income and substitution effects? Will hework more hours or less in the face of the EITC program?

A household will choose the mix of labour, leisure, and income that delivers the highest utility…

Answered: Suppose that the government introduces…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Q3. A consumer with the utility function U(x₁, x2) = xx and her income $200 faces the market prices (P₁, P2) = (4,4). Now the government introduces a consumption tax of $2 for every unit of good *₁ purchased. A. Find the total tax revenue. B. Instead of the consumption tax, if the government takes away a lump- sum amount from the consumer as an income tax, maintaining the same welfare level the consumer has under $2 consumption tax, how much more revenue the government could collect?
I am working on practice problems for my midterm and I want to make sure I get them right.
After the imposition of a tax, equilibtium is as the intersection of demand and supply+tax. By how mach does consumer expenditure change after the imposition of the tax? Price 10 8 5 0 6 7 10 S = tax D S Quantity
Assume two normal and ordinary goods A and B. If the good A is taxed and its compensated demand is constructed around the customer after tax utility level, would the excess burden due to tax on A from the customer's compensated demand be greater or less than her deadweight loss from her ordinary (uncompensated) demand? Use the effects to explain.
Reagan campaigned for a phased 30 percent tax cut within the next three years in officeMost of the tax cuts focused on the lower -income and poverty levels . True or False?
Price Tasc Quantity In the graph shown, the price that will be paid after the tax is Select one: О а. Р1. O b. P2. О с. Р3. O d. impossible to determine.
Use the following parameters to sketch two budget constraints, one with no (or $0) basic personal amount (BPA) and one with $1000 BPA, in a diagram:i. Assume there is only one tax bracket with income tax rate 50%ii. Time endowment = 24, wage rate per hour = $100iii. No other deductions and tax credits. Based on your diagram, discuss how the increase in BPA from $0 to $1000 would affect the labor supply due to the substitution and income effects.
P2 D2 D1 Consider the effect of the anti-smoking campaign to be funded by proceeds of the cigarette tax. If the tax raises the price from P1 to P2 and the anti-smoking campaign is successful,
Consider a person who consumes water and bread, deriving utility by xy if x is the amount of water consumed and y is the amount of bread consumed. Suppose this person's income is Rs. 10, the unit price of bread is Rs. 3 and the unit price of water facing this person is Re. 1. The price of water incorporates a per unit subsidy of Re. 1, i.e., for every unit of water consumed by this person, she pays Re. 1 to the water supplier and the government pays Re. 1 to the water supplier. Suppose this person's demand is (x0, y0). ,If the government provides this person a lump-sum income subsidy that exactly offsets her utility loss on account of removal of the water subsidy, then the required lump-sum subsidy is
Answer the given question with a proper explanation and step-by-step solution.
Song earns $148,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $29,600 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Song's average tax rate increases from 20 percent to 25 percent. Required: What will happen to the government's tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $111,000 in taxable income? What is the term that describes this type of reaction to a tax rate increase? What types of taxpayers are likely to respond in this manner?

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