Consider your decision about how many hours to work. The following graph shows your budget constraint assuming that you pay no taxes on your income. On the following graph, show the effect of a 15 percent income tax on your budget constraint. In order for the overall effect of an income tax to cause the number of hours worked to increase, the income effect must be (greater than , less than , the same as) ? the substitution effect.
Consider your decision about how many hours to work. The following graph shows your budget constraint assuming that you pay no taxes on your income. On the following graph, show the effect of a 15 percent income tax on your budget constraint. In order for the overall effect of an income tax to cause the number of hours worked to increase, the income effect must be (greater than , less than , the same as) ? the substitution effect.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Consider your decision about how many hours to work.
The following graph shows your budget constraint assuming that you pay no taxes on your income.
On the following graph, show the effect of a 15 percent income tax on your budget constraint.
In order for the overall effect of an income tax to cause the number of hours worked to increase, the income effect must be
(greater than , less than , the same as) ? the substitution effect.
Transcribed Image Text:The following graph shows your budget constraint assuming that you pay no taxes on your income.
On the following graph, show the effect of a 15 percent income tax on your budget constraint.
BC
Leisure
Transcribed Image Text:BC
Consumption
In order for the overall effect of an income tax to cause the number of hours worked to increase, the income effect must be
the
substitution effect.
Leisure
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