Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 10, Problem 4.4P
To determine
Investment tax credit.
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Suppose that for every hour worked in the labour market, single mothers use an hour of childcare, and the hourly childcare cost is π pounds.
The members of Parliament are interested in evaluating the impact of two different policies:
Policy 1: provides single mothers with a lump sum benefit.
Policy 2: provides single mothers with a fixed tax cut for every pound earned.
What are the impacts of these two policies on labour supply (hours worked and participation rates) of single mothers in the UK (United Kingdom)?
Do you expect the impact of these two policies to be different? Why? (400 words)
If labor supply is perfectly inelastic, the imposing a payroll tax that will be split between employers and employees will
a) reduce employment.
b) leave employment levels unchanged.
c) cause the tax burden to fall exclusively on firms.
d) cause the tax burden to fall exclusively on workers.
If older workers have a tax elasticity of labor supply equal to 0.55, by how much will their work activity decline when they reach the
Social Security earnings test limit (.e.. wage ceiling)? Recall that the Social Security earnings test limit says that Social Security benefits
will be reduced by 50 cents for every additional $1 earned after the wage ceiling.
Instructions: Enter your response as a positive percentage rounded to one decimal place. Do not include a negative sign with your
answer
Chapter 10 Solutions
Principles of Economics (12th Edition)
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