Suppose the welfare benefit formula is
Welfare Benefit amount = $8,000 – 0.67 (Wages earned – $2,000)
- What is the marginal tax rate on:
1a. The first $2,000 of wages? (in other words, how much is the tax on first $2000?)
1b. Wages above $2,000?
- How large is the Welfare benefit amount if wages equal to:
2a. $0?
2b. $2,000?
2c. $6,000?
- What is the breakeven level of income in this case? (In other words, what is the wages earned amount which will equal the $8,000 benefit amount according to the equation given?)
