=+3.19*†

Policy Application: The Earned Income Tax Credit: During the Clinton administration, the Earned Income Tax Credit (EITC) was expanded considerably. The program provides a wage subsidy to lowincome families through the tax code in a way similar to this example: Suppose, as in the previous exercise, that you can earn $5 per hour. Under the EITC, the government supplements your first $20 of daily earnings by 100% and the next $15 in daily earnings by 50%. For any daily income above $35, the government imposes a 20% tax.

A. Suppose you have at most 8 hours of leisure time per day.