1. True or false (30 points total). For each of the following, indicate whether the statements...

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1. True or false (30 points total). For each of the following, indicate whether the statements made in each part are true or false, and explain your answer. If your answer depends on any assumptions, state them clearly. (Hint: you might need to make an assumption to determine whether the statement is true or false, and the answer might differ depending on your assumption.) Use graphs or equations to illustrate your answer whenever it is helpful. Don't just state the answer. a. (5 points) Labor supply theory predicts that if we reduce the income tax rate, people will work more. b. (10) In a married couple, the wife's wage increases and she responds by working more hours. Assume leisure is a normal good. Then because family income is now higher, the husband will respond by working fewer hours. c. (5) If workers have to pay higher transportation costs to get to and from work, their reservation wage will be higher. (Hint: Consider the effect on the budget constraint.) 1. True or false (30 points total). For each of the following, indicate whether the statements made in each part are true or false, and explain your answer. If your answer depends on any assumptions, state them clearly. (Hint: you might need to make an assumption to determine whether the statement is true or false, and the answer might differ depending on your assumption.) Use graphs or equations to illustrate your answer whenever it is helpful. Don't just state the answer. a. (5 points) Labor supply theory predicts that if we reduce the income tax rate, people will work more. b. (10) In a married couple, the wife's wage increases and she responds by working more hours. Assume leisure is a normal good. Then because family income is now higher, the husband will respond by working fewer hours. c. (5) If workers have to pay higher transportation costs to get to and from work, their reservation wage will be higher. (Hint: Consider the effect on the budget constraint.)