Joshua Metcalf & Alex Davis

E
LIN

1.

UA

TOTAL $ (Y) CONSUMPTION

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
250

AVERAGE TAX RATE = 21.2%

925
MARGINAL TAX RATE = 28%

3.
0
45
HOURS SPENT NOT WORKING (L)

55

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

4A.

100

E
LIN
B

Joshua Metcalf & Alex Davis

4B.

775

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.

Joshua Metcalf & Alex Davis

TOTAL $ (Y) CONSUMPTION

E
LIN

775

4C.
250

-35

925

54 55

HOURS SPENT NOT WORKING (L)

LINE A

25

100