Suppose that Hawaii legalizes casino gambling. By imposing a tax on casino revenues, the state government is able to eliminate the state income tax on wages. What is likely to be the effect on the labor supply curve in Hawaii?
What will be an ideal response?
Eliminating the income tax on wages increases the opportunity cost of leisure because the after-tax wage is now higher than it was. Workers will also earn more income for any given number of hours worked. Whether workers will end up supplying more hours at each wage rate depends on whether the substitution effect of this increase in the after-tax wage is greater than the income effect.
You might also like to view...
Assume the Fed wants to lower the interest rate. How does the Fed lower the interest rate in the short run?
What will be an ideal response?
If a firm reacts to other firms' market decisions by anticipating how the others will then react, this reflects
a. the behavior of followers of a price leader b. the behavior associated with price leadership c. a market with a low concentration ratio d. mutual interdependence e. collusion by definition
If Joanna is risk averse, then
a. her utility function exhibits the property of decreasing utility. b. her utility function exhibits the property of increasing marginal utility. c. she dislikes bad things more than she likes comparable good things. d. she is unlike most people, because most people are not risk averse.
Which of the following is NOT a deficit item on a country's balance of payments?
A. gold sales to foreigners B. a personal gift to a foreign individual C. imports D. none of these