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QUESTION 4 (15 Marks) Consider an individual who has to decide how many hours to work in a year. Assume that the maximum number
QUESTION 4 (15 Marks) Consider an individual who has to decide how many hours to work in a year. Assume that the maximum number of hours of labour in a year are 4,000 (2 full time jobs), and that this worker can earn $10 an hour. a) (3 marks) Draw the budget constraint facing this individual below: Earnings Leisure b) (3 marks) Draw an initial indifference curve (above) that represents selecting 2,500 hours of work a year. Label earnings at this point on the budget constraint. c) (4 marks) The EITC offers an income subsidy to low income workers with children. For a family with two children, this tax credit is 40% for all earnings up to $10,510. The credit reaches its maximum here, at $4,204. Families that earn between $10,510 and $14,730 receive this credit as a lump sum. Families that earn above $14,730 lose 21.06 cents of the credit for each dollar they earn above $14,730. Assuming that this worker has two children, illustrate the impact of this credit in the space provided above.
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