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3240sola

# 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 per hour for the fi 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 ff 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 fl at wage (i.e., 3 = 5 5) leads them to choose point B. If fi 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%, reaching zero as earnings pass \$40,295.

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

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