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Suppose that the Earned Income Tax Credit is set up so that a maximum payment of...

Suppose that the Earned Income Tax Credit is set up so that a maximum payment of $3,000 can be earned when a qualified worker earns $10,000. This payment represents a subsidy of 30 cents for each additional dollar earned up to $10,000.

Workers earning between $10,000 and $14,000 are eligible for the maximum payment. Once labor market earnings exceed $14,000, additional earnings reduce the subsidy by 45 cents for each dollar earned.

The going wage rate is $10 per hour.

What is the total money income of a person working 1200 hours in the labor market after the EITC?

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Answer #1

The wage rate = $10 per hour

Hours worked = 1200

Hence, dollar earinings from work = 1200 * $10 = $12000

It shall be noted that Workers earning between $10,000 and $14,000 are eligible for the maximum payment.

Since,  subsidy of 30 cents is for each additional dollar earned up to $10,000 and there is no mention of subsidy for earning between $10,000 and $14,000 ;

Thus, maximum payment is : 30% $10000 = $3000

The total money income of a person working 1200 hours in the labor market after the EITC is $12000

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