3240sola - York University AP/Econ 3240A Midterm Exam:...

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York University AP/Econ 3240A Midterm Exam: October 28, 2010, 1-2:20 1. Why might a company constantly pay an overtime premium rather than pay the straight-time hourly equivalent? For example, if a company was paying its workers $5 perhourforthe f rst 8 hours and $7 5 for the next 2 hours (for a total of 55 dollars per 10-hour day), why might the company not be willing to o f er its workers the straight-time hourly equivalent of $5 5 per hours since that is in fact what they are earning? Use diagrams and prove the above-mentioned fact. (20 points) [[[Ans: Let 1 =5  2 = 7 5  3 =5 5 (see Figure 1). Two-part wage schemes (i.e., 1 =5 and 2 =7 5) induce workers to stay at point A. Paying a F at wage (i.e., 3 = 5 5) leads them to choose point B. If f rms wish their employees to work longer hours (10 hours, say), the wage after 5pm should be substantially higher. Otherwise, workers wish to work less. ]]] 2. The Earned Income Tax Credit (EITC) is a refundable tax credit for low- and middle-income persons and couples, primarily for those with children. In 2009, it provides a refundable tax credit equal to 20% of earned income up to $3,043 for families with one child. Once their combined income reaches $16,420, at which point the credit begins to phase out at 21.06%,
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3240sola - York University AP/Econ 3240A Midterm Exam:...

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