ps 2 metcalf davis

Joshua Metcalf & Alex Davis

1.

2.

(17,850*0.05) + (54,650*0.1) + (73,900*0.2) + (76,650*0.23) + (126,950*0.28) = 74,313

74,313/350,000 = .212

AVERAGE TAX RATE = 21.2%

MARGINAL TAX RATE = 28%

3.

FIX ALL OF 4 FROM x=100 to x=300

4A.

UA

LINE A

250

45 550 HOURS SPENT NOT WORKING (L)

TOTAL $ (Y) CONSUMPTION

925

100

1


4B.

Since the cost of childcare is only a factor if Jamaal works more than zero hours, it

operates as a disincentive for him to work. In terms of the income effect, since Jamaal

would have less income at his disposal after working compared to Line A he also has less

demand for leisure. Although only relevant after his first hour worked, this decrease in

purchasing power could incentivize Jamaal to work more. Since the substitution effect is

caused by a change in relative prices, it is mostly irrelevant in this scenario because the

relative cost of working versus leisure has remained the same.

LINE B775

-35

UA

LINE A

250

45 54 55 0

HOURS SPENT NOT WORKING (L)


925

100

2


4C.

LINE B775

-35

250

54 55 0

HOURS SPENT NOT WORKING (L)


925

100

25

LINE A

3

ps 2 metcalf davis

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