Point on the budget constraint this worker has chosen

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Q. 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 low-income family through the tax code in a way similar to this example: Assume you can earn $5 every hour. Under EITC, the government supplements your 1st $20 of daily earnings by 100% also the next $15 in daily earnings by 50%. For any daily income above $35, the government imposes a 20% tax. Assume you have at most 8 hours of leisure time every day.

PartA: Illustrate your budget constraint (with daily leisure on the horizontal also daily consumption on the vertical axis) under this EITC.

PartB: Assume the government ends up paying a total of $25 every day to particular worker under this program also collects no tax revenue. Identify the point on the budget constraint this worker has chosen. Elucidate how much is he working every day?

Reference no: EM1322778

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