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150a_test1

# 150a_test1 - Econ 150a Labor Economics Practice test for Ch...

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Econ 150a Labor Economics Practice test for Ch 1, 2, and 9. 1. Phillip receives EITC. If he earns less than 10,000 per year the government subsidizes his wages by 40% (or 0.4). If he earns between \$10,000 and \$12,000 there is no tax. If he earns greater than \$12,000 he is taxed 21.06% (or 0.2106). His market wages are \$10 per hour. He has 5,000 hours per year to devote to labor or leisure. Show all answers from a-e graphically on the same graph. a. Assuming no subsidy and U(C,L) = CL, find Phillip’s utility maximizing combination of leisure and labor. b. Find the maximum value of the subsidy. c. Find the range of work hours where his wage is \$10 and he receives the full subsidy. (Find the points where no subsidy is earned to the point where the subsidy is taxed). d. Find the maximum work hours where the subsidy goes to zero. e. Now assume he is eligible for the subsidy. Find his utility maximizing labor and leisure choice. f. On one graph, clearly label all your answers from parts a-e. 2. Among single, college-educated women aged 22 – 25, average annual hours worked is 2,160 and the average wage is \$22.50. If the average wage increases to \$25 per hour, average annual hours worked increases to 2,340. What is the elasticity of labor supply for this group of workers? Hint, use percent change formula (would have been covered in

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150a_test1 - Econ 150a Labor Economics Practice test for Ch...

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