The EITC is a subsidy given to workers for working. Suppose everyone in a particular unskilled labor market is receiving EITC payments of a given amount for each hour that they work.

a. Draw a diagram showing the impact of the EITC on the labor market equilibrium. On your graph, identify the wage rate and employment level both before and after EITC is introduced.

b. What happens to the wage rate that employers pay to their workers after the EITC? Explain briefly.

c. What happens to the wage rate the workers get (including the subsidy)? Explain briefly.