Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year and 10 million are rich households that each have labor market earnings of $80,000 per year. If the government enacted a marginal tax of 10 percent on all labor market earnings above $20,000 and transferred this money to households earning $20,000 or less, would the incomes of the poor rise by $8,000 per year? O A. No. Workers in rich and poor households would work less because of the marginal tax. O B. Yes. 10% of $80,000 is $8,000; therefore, $8,000 from each rich household would be transferred to each poor household. c. There is not enough information to determine household behavior in this case. O D. No. Only workers in rich households would work less because of the marginal tax.

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Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year and 10 million are rich
households that each have labor market earnings of $80,000 per year.
If the government enacted a marginal tax of 10 percent on all labor market earnings above $20,000 and transferred this money to households earning $20,000 or
less, would the incomes of the poor rise by $8,000 per year?
O A. No. Workers in rich and poor households would work less because of the marginal tax.
O B. Yes. 10% of $80,000 is $8,000; therefore, $8,000 from each rich household would be transferred to each poor household.
O C. There is not enough information to determine household behavior in this case.
O D. No. Only workers in rich households would work less because of the marginal tax.
Transcribed Image Text:Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year and 10 million are rich households that each have labor market earnings of $80,000 per year. If the government enacted a marginal tax of 10 percent on all labor market earnings above $20,000 and transferred this money to households earning $20,000 or less, would the incomes of the poor rise by $8,000 per year? O A. No. Workers in rich and poor households would work less because of the marginal tax. O B. Yes. 10% of $80,000 is $8,000; therefore, $8,000 from each rich household would be transferred to each poor household. O C. There is not enough information to determine household behavior in this case. O D. No. Only workers in rich households would work less because of the marginal tax.
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