1 Suppose that a subsidy plan is introduced for low-income workers Under the plan an unmarried worker with two children would receive a tax credit of 30% for income less than or equal to $10,000 In...

1 Suppose that a subsidy plan is introduced for low-income workers Under the plan an unmarried
worker with two children would receive a tax credit of 30% for income less than
or equal to $10,000 In addition, the maximum tax credit would be maintained until income
reaches $20,000 after which it is taxed away at a rate of 20% In addition, you are told that this
individual has a maximum of 4,000 hours of leisure per year and earns a wage of $15 per hour
a) Calculate the level of income at which there is no tax credit Explain
b) Illustrate diagrammatically the three different “zones” pertaining to this program

2 Suppose that a worker is currently earning a wage of $20 per hour and has a maximum of 4,000 hours
of leisure per year

a) Draw this individual’s budget line indicating both intercepts
b) Now suppose that the federal government introduces a guaranteed income plan which provides
for a sum of $15,000 for an adult earning between $0 and $30,000, after which it is taxed away
at a rate of 50%
I
Calculate the level of income at which there is no income support from the government
II
Illustrate the two different “zones” pertaining to this program
III
If the worker earns an income of $50,000, how much of the guaranteed income would
he get to keep and how many hours of leisure would he have? Illustrate these values in
your diagram