In New Zealand, the Family Tax credit (FTC) gives a working mother with one child $113 if her weekly earnings are between $0 to $820. For each additional dollar earned above $820, the tax credit decreases by 25 cents. Consider a working mother with one child in New Zealand. Her wage rate is $30 per hour, and the maximum hours she can work is 80 hours per week. a) Draw her budget line without the FTC. What is the slope of the budget line? b) Draw her budget line with the FTC. What are the slopes of the new budget line? (Please specify the slopes of each segment of the budget line.) c) Where does the new budget line intersects with the initial budget line? What are her income and hours of work at the intersection? d) Suppose the working mother works 25 hours per week under the original budget constraint without the FTC. Will she work more, less, or ambiguous after the introduction of the FTC? Draw a figure and explain you answer in terms of income and substitution effect.

In New Zealand, the Family Tax credit (FTC) gives a working mother with one child $113 if her weekly earnings are between $0 to $820. For each additional dollar earned above $820, the tax credit decreases by 25 cents. Consider a working mother with one child in New Zealand. Her wage rate is $30 per hour, and the maximum hours she can work is 80 hours per week. a) Draw her budget line without the FTC. What is the slope of the budget line? b) Draw her budget line with the FTC. What are the slopes of the new budget line? (Please specify the slopes of each segment of the budget line.) c) Where does the new budget line intersects with the initial budget line? What are her income and hours of work at the intersection? d) Suppose the working mother works 25 hours per week under the original budget constraint without the FTC. Will she work more, less, or ambiguous after the introduction of the FTC? Draw a figure and explain you answer in terms of income and substitution effect.

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter15: Income Inequality And Poverty

Section: Chapter Questions

Problem 7CQ

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