Answered: If the return to labor decreases, then…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the return to labor decreases, then the income effect:
Offsets the substitution effect if leisure is inferior.
Reinforces the substitution effect if leisure is normal.
There is no income effect in this case
Offsets the substitution effect if leisure is normal.

The one-period model with quasi-linear utility predicts that a decrease in
marginal income tax rates could increase tax collection if:
Income effect dominate substitution effects so that the percent change in taxes is
less than the percent change in GDP
Substitution effects dominate income effects so that the percent change in taxes is
greater than the percent change in GDP
Substitution effects dominate income effects so that the percent change in taxes is
less than the percent change in GDP
O Income effects dominate substitution effects so that the percent change in taxes is
greater than the percent change in GDP

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The one-period model with quasi-linear utility predicts that a decrease in marginal income tax rates could increase tax collection if:
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Substitution effects dominate income effects so that the percent change in taxes is greater than the percent change in GDP

Substitution effects dominate income effects so that the percent change in taxes is less than the percent change in GDP

Income effect dominate substitution effects so that the percent change in taxes is less than the percent change in GDP

Income effects dominate substitution effects so that the percent change in taxes is greater than the percent change in GDP

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