2. Practice on EITC, income and substation effectsSuppose that the government introduces an EITC such that for the first$8,000 in earnings, the government pays 50¢ per dollar on wages earned.For the next $3,000 of earnings, the credit is held constant at $4,000, andafter that point, the credit is reduced at a rate of 20¢ per dollar earned.When the credit reaches zero, there is no additional EITC.a. Draw the budget constraint that reflects this EITC for a worker whocan work up to 4,000 hours per year at an hourly wage of $10 perhour.b. If this worker works for 2000 hours a year before the program isintroduced, what will be the income and substitution effects? Will hework more hours or less in the face of the EITC program?

A household will choose the mix of labour, leisure, and income that delivers the highest utility…

Answered: Suppose that the government introduces…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The government imposes a lump sum tax. What happens to the budget line? (Select all that apply). The slope becomes steeper. The slope becomes flatter. The horizontal intercept moves to the right. The horizontal intercept moves to the left. The vertical intercept moves to up. The vertical intercept moves down.
Which of the following government spending categories falls into the discretionary category SNAP payments (suuplemental nutrition assistance program, colloquially known as food stamps) medicaid payments O salaries of employees of the Bureau for Economic Analysis O social security payments
Q3. A consumer with the utility function U(x₁, x2) = xx and her income $200 faces the market prices (P₁, P2) = (4,4). Now the government introduces a consumption tax of $2 for every unit of good *₁ purchased. A. Find the total tax revenue. B. Instead of the consumption tax, if the government takes away a lump- sum amount from the consumer as an income tax, maintaining the same welfare level the consumer has under $2 consumption tax, how much more revenue the government could collect?
Suppose that the local government of Santa Fe decides to institute a tax on seltzer producers. Before the tax, 15 million packs of seltzer were sold every month at a price of $11 per pack. After the tax, 9 million packs of seltzer are sold every month; consumers pay $14 per pack, and producers receive $7 per pack (after paying the tax). The amount of the tax on a pack of seltzer is $ burden that falls on producers is $ O True per pack. True or False: The effect of the tax on the quantity sold would have been the same as if the tax had been levied on consumers. O False per pack. Of this amount, the burden that falls on consumers is $ per pack, and the
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Draw a diagram where sellers have to pay a $X tax to the Government on each unit that they sell. Then this tax is decreased to $Y. Draw a demand and supply diagram showing this tax reduction causing an increase in Government taxation revenue. Please provide a written explanation for your diagram and discuss its policy implications. ( maximum word limit: 250 words)
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Given f(x,y) = 2x2 - 6xy + 9y2, and Px= 7, Py= 5 and income, I = 175. Construct the budget contraint and Lagrange function and solve for the equilibrium values of x and y. (a) What is the equilibrium value of x? (Give your answer to two decimal places, if required) (b) What is the equilibrium value of y? (Give your answer to two decimal places, if required) (c) What is the value of the determinant of the bordered Hessian matrix? (Give your answer to two decimal places, if required) unanswered d. Based on the value of the Bordered Hessian, comment whether the objective function is maximized or minimized. Answer in one word.
Consider a government that raises money in a two-good economy by taxing good 1 at a rate of t per unit. The government is considering replacing these taxes with a lump-sum tax to the consumer that raises the same revenue. Thus, if the consumer consumes x units of good 1 before the change in taxes, she must pay the government a lump sum of tx after the change. Suppose, moreover, that prices change only by the amount of the tax; i.e., if prices are (p₁+t, p2) before the change, then they become (P₁, P2) after. Let x = (x1, x₂) be the consumer's demand before the change, and x' (x1,x2) the consumer's demand after. Suppose that x = x'. = (a) Is one of x or x' revealed preferred to the other (and if so, which)? (b) Assuming that the consumer's demand satisfies the Weak Axiom of Revealed Preference, does the change in taxes lead to an increase or decrease in consumption of Good 1, or is it impossible to determine? What about Good 2?
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