Chapter 2, Problem 5QPD

In each of the following cases, discuss how the taxpayers might respond to a tax rate increase in a manner consistent with the income effect.

1. a. Mr. E earns $32,000 a year as an employee, and Mrs. E doesn’t work.
2. b. Mr. F earns $22,000 a year as an employee, and Mrs. F earns $10,000 a year as a self-employed worker.
3. c. Mr. G earns $22,000 a year as an employee, and Mrs. G earns $10,000 a year as an employee.