Question
Here are two questions on the Consumer Choice Model when tax are imposed on labor: (a) Consider instances where taxes are imposed on the supply
Here are two questions on the Consumer Choice Model when tax are imposed on labor:
(a) Consider instances where taxes are imposed on the supply of labor. Explain how thesubstitution effectinfluences one's preference for leisure time. [5 points]
(b) Again, consider instances where taxes are imposed on the supply of labor. Explain how theincome effectinfluences one's preference for leisure time. [5 points]
(c) In the Consumer Choice Model, what must be true if a higher marginal income tax rate on an individual's salary earnings results in a reduction in his/herleisurehours (or increase in his/her work hours)? Would the substitution be stronger the income effect? Or vice-versa? Discuss.[8 points]
(d) A common critique of using the Consumer Choice Model to predict the impact of labor taxes is the presence of certain obstacles that workers face when choosing their work and leisure hours. Provide one example of such an obstacle.[4 points]
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