Marc works as a mechanic and he has a hourly wage of $10. He receives this wage up to 40 hours of work per week. His hourly wage doubles for every hours worked in excess of 40.

Question 1. Marc works as a mechanic and he has a hourly wage of $10. He receives this wage up to 40 hours of work per week. His hourly wage doubles for every hours worked in excess of 40. Tom must also pay for his son to attend day care. His day care costs are $2 for every hour he works and he receives a $50 dollar childcare subsidy each week. He can allocate 100 hours in the week between work and leisure and he faces a 30 percent tax rate for every hour he works.

Graph the budget line and label your graph appropriately.

Question 2. Explain briefly using economic concepts why economists tend to prefer income maintenance programmes such as the E.I.T.C over a lump sum transfer such as ‘welfare’

Question 3. Consider me and my twin sister, G & J. We have the same life cycle wage path throughout our lives and we have the ability to anticipate our future wages. We treat consumption as a normal good and we treat leisure as a normal good.

Draw a graph to illustrate how our life cycle path would differ if J receive a one-time inheritance at 40 years old.

Compare the life cycle path with a graph of hours worked if J always knew she would get a receive a one-time inheritance at 40.

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