3_Labor Supply 2 - 10 Not over $16,750 Not over $8,375 15...

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INCOME AND SUBSTITUTION EFFECTS L C U 0 L* C* h*
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THE EFFECT OF A CHANGE IN NONLABOR INCOME ON HOURS OF WORK L C U 0 An increase in nonlabor income leads to a parallel upward shift in the budget line. If leisure is a normal good work hours will fall. This is the INCOME EFFECT. U 1
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THE EFFECT OF A CHANGE IN WAGE ON HOURS OF WORK L C U 0 L* C* h*
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THE EFFECT OF A CHANGE IN WAGE ON HOURS OF WORK L C U 0 C* U 1 An increase in wage leads to an outward rotation of the budget line. Income increases at any h (except 0) Price of leisure also increases The effect on hours of work is ambiguous. It will depend on the relative strengths of income and substitution effects.
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RESERVATION WAGE C U 0 L • The reservation wage, w r, is equal to the slope of the IC at zero hours. • If gG± ≤ ² at zero hours of work, the individual will participate w r
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TAXES
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U.S. 2010 INCOME TAX RATES Tax Rate Married Couples Filing Jointly Most Single Filers
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Unformatted text preview: 10% Not over $16,750 Not over $8,375 15% $16,751 - $68,000 $8,376 - $34,000 25% $68,001 - $137,300 $34,001 - $82,400 28% $137,301 - $209,250 $82,401 - $171,850 33% $209,251 - $373,650 $171,851 - $373,650 35% Over $373,650 Over $373,650 U.S. 2010 INCOME TAX RATES Tax Rate Married Couples Filing Jointly Most Single Filers 10% Not over $16,750 Not over $8,375 15% $16,751 - $68,000 $8,376 - $34,000 25% $68,001 - $137,300 $34,001 - $82,400 28% $137,301 - $209,250 $82,401 - $171,850 33% $209,251 - $373,650 $171,851 - $373,650 35% Over $373,650 Over $373,650 Marginal tax rate: Tax on next $ earned Ex: The MTR at $150,000 for a single filer is 28% Average tax rate: The fraction of earnings paid as taxes Ex: The ATR at $150,000 is .10 8375 + .15 34000 − 8375 + .25 82400 − 34000 + .28 150000 − 82400 → 34428 150000 = 22.95%...
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3_Labor Supply 2 - 10 Not over $16,750 Not over $8,375 15...

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