/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q6. 聽Why might one person work more... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 18: Q6. (page 388)

Why might one person work more, earn more, and pay more income tax when his or her tax rate is cut, while another person will work less, earn less, and pay less income tax under the same circumstance?

Short Answer

Expert verified

Under the same circumstance, a person would work more and pay more income tax if the opportunity cost of leisure is high. However, another person would work less and earn less if the opportunity cost of leisure is low.

Step by step solution

01

The tax rate and incentive to work 

The differences in tax rates alter people鈥檚 incentives to work.The Laffer curve is inverted U-shaped. It implies that two tax rates (lower and higher) yield the same revenue to the government.For lower tax rates, a person might be induced to work more and pay more income tax. The reason is that for lower tax rates, the opportunity cost of leisure is higher, so a person would substitute labor for leisure. Hence, he would earn more and pay more income tax.

However, for higher tax rates, a person might be induced to work less and pay less income tax. The reason is that for higher tax rates, the opportunity cost of leisure is lower, so a person would substitute leisure for labor. Hence, he would earn less and pay less income tax.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Suppose that over a 30-year period Buskerville鈥檚 price level increased from 72 to 138, while its real GDP rose from \(1.2 trillion to \)2.1 trillion. Did economic growth occur in Buskerville? If so, by what average yearly rate in percentage terms (rounded to one decimal place)? Did Buskerville experience inflation? If so, by what average yearly rate in percentage terms (rounded to one decimal place)? Which shifted rightward faster in Buskerville: its long-run aggregate supply curve (ASLR) or its aggregate demand curve (AD)?

Which of the following statements are true? Which are false? Explain why the false statements are untrue.

a. Short-run aggregate supply curves reflect an inverse relationship between the price level and the level of real output.

b. The long-run aggregate supply curve assumes that nominal wages are fixed.

c. In the long run, an increase in the price level will result in an increase in nominal wages.

Suppose the full-employment level of real output (Q) for a hypothetical economy is $250 and the price level (P) initially is 100. Use the short-run aggregate supply schedules below to answer the questions that follow:

AS(P100)
AS(P125)
AS(P75)
PQPQPQ
125280125250125310
100250100220100280
752207519075250

What is the level of real output in the short run if the price level unexpectedly rises from 100 to 125 because of an increase in aggregate demand? What happens if the price level unexpectedly falls from 100 to 75 because of a decrease in aggregate demand? Explain each situation, using numbers from the table.

b. What is the level of real output in the long run when the price level rises from 100 to 125? When it falls from 100 to 75? Explain each situation.

c. Illustrate the circumstances described in parts a and b on graph paper, and derive the long-run aggregate supply curve.

Suppose that AD and AS intersect at an output level that is higher than the full-employment output level. After the economy adjusts back to equilibrium in the long run, the price level will be _______.

a. higher than it is now

b. lower than it is now

c. the same as it is now

Between 1990 and 2009, the U.S. price level rose by about 64 percent while real output increased by about 62 percent. Use the aggregate demand鈥揳ggregate supply model to illustrate these outcomes graphically.
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.