Homework 2 answer key-1

Homework 2 answer key-1 - Economics 375 Economics of...

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1 Economics 375 Fall 2010 Economics of Poverty and Discrimination Prof. Todd Homework 2 Name Collaborators? 1) The City of Gotham is considering 3 different policies to provide cash support for low-income workers. Here are the 3 policies: Policy A Gives everyone with low income a $15,000 per year credit whether that person works or not. Has a benefit reduction rate of $1.00 (for every dollar earned, the credit is reduced by $1.00). The credit is phased out when earnings are equal to $15,000. Policy B Gives everyone with low income a $10,000 per year credit whether that person works or not. Has a benefit reduction rate of $0.40. The credit is phased out when earnings are equal to $25,000. Policy C Gives a $0.50 credit for every $1 earned up to $16,000. The maximum credit of $8,000 is received for earnings between $16,000 and $20,000. For earnings in excess of $20,000, the credit is reduced by $0.50 for every $1 earned. The credit is phased out at $36,000. a). On the graphs below, assuming a labor/leisure model, draw the new budget constraint a worker would face under each of these programs. (The budget constraints without the program are already given below). Mark important points on the graph (e.g. where the credit begins to be reduced and where it is phased out). (15 points – 5 points each) RED LINES ON GRAPHS BELOW b). Explain and show on the graphs how labor supply changes under each of the three programs.
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Homework 2 answer key-1 - Economics 375 Economics of...

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