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mid1s04am

# mid1s04am - form does the EITC take(I do not need speci f c...

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AECO370(am) Mid-term 1 Spring 2004 Instructions: Answer 2 of the following 3 questions. Provide diagrams and explain your answers. (1) Freddie has preferences given by the utility function U ( C, L ) = CL so that the slope of his indi ff erence curve is C L . Jason has preferences given by the utility function U ( C, L ) = CL 2 so that the slope of his indi ff erence curve is 2 C L . (a) Which of them has the relatively stronger preference for consumption over leisure? Explain. (b) They can both earn \$10 per hour and they both have a non-labor income of \$300 per week. If they each have 110 hours to distribute between work and leisure, how many hours do they each work? (c) What are their reservation wages? (d) How would winning the lottery a ff ect their reservation wages? Ex- plain. (2) What is the objective of the Earned Income Tax Credit (EITC)? What
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Unformatted text preview: form does the EITC take (I do not need speci f c numbers)? What are the predictions of the model of labor supply as to the e f ect of EITC on hours of work? Suppose the government proposed an increase in the maximum credit receivable. How would the proposed change to EITC a f ect the labor supply of an individual who would receive the maximum credit before and after the change. Explain. (3) Describe a model which can be used to address the amount of time spent by married couples working in the market and working at home. Sup-pose the husband has the relatively greater ability to bring home market goods. What outcomes are possible as to their chosen patterns of work? How does this change if the wife has the greater ability to bring home mar-ket goods? 1...
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