On a separate sheet of paper, draw a graph representing the labor leisure decision for a year, with 4000 discretionary hours in
a year. Label your axes with leisure on the horizontal axis, and consumption on the vertical axis. Assume the wage is $16 per hour.
Draw a budget constraint and label the endpoints. Carefully draw an indifference curve for a utility-maximizing worker who initially chooses 1000 hours of work per year. Label hours of leisure, hours of labor, and earnings.
Now consider the introduction of the EITC for a single-earner married couple with 2 children in 2019, which has a phase-in range with a 40% wage subsidy up to $14,570 of earnings, a constant range where the subsidy is fixed at $5828 for earnings between $14,570 and $24,820, and a phase-out range where the subsidy is reduced 21.06% for every dollar earned above $24,820.
Draw the budget constraint with the EITC, labeling each kink point and the point where the EITC is fully phased out on your graph carefully, along the vertical axis (in dollars, not hours).
Draw a budget constraint and label the endpoints. Carefully draw an indifference curve for a utility-maximizing worker who initially chooses 1000 hours of work per year. Label hours of leisure, hours of labor, and earnings.
Now consider the introduction of the EITC for a single-earner married couple with 2 children in 2019, which has a phase-in range with a 40% wage subsidy up to $14,570 of earnings, a constant range where the subsidy is fixed at $5828 for earnings between $14,570 and $24,820, and a phase-out range where the subsidy is reduced 21.06% for every dollar earned above $24,820.
Draw the budget constraint with the EITC, labeling each kink point and the point where the EITC is fully phased out on your graph carefully, along the vertical axis (in dollars, not hours).
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