Question

Suppose that a typical individual works 2.5% fewer hours when the wage increases by 10%. In this case, labor supply elasticity equals:

	A.	-2.5
	B.	2.5
	C.	-4
	D.	4

The Earned Income Tax Credit is a federal program that

	A.	increases wages for the working poor.
	B.	increases the wages of minorities.
	C.	provides cash assistance to the non-working poor.
	D.	provides in-kind assistance to minimum wage workers.
	E.	provides cash assistance to firms that hire single mothers living in poverty.

Answer 1

Question 1) all options are wrong

Labor supply elasticity =

%∆ in Labor supply / %∆ in wages

= -2.5%/ 10%= -.25

thus correct answer is -.25

Q2) option A)

EITC is a refundable tax credit available to eligible workers who earn relatively low wages.

Thus tax collected is refunded, hence effective wages rise for poor workers.