Question

suppose the government levies a tax on all ink pens sold in the country. assume all goods are normal goods. which is a spillover income effect of the tax? group of answer choices people buy more pencils because they have less after-tax income. people buy fewer books because they have less after-tax income. people buy more pencils because pencils are now cheaper compared with pens. people buy more ink pens because sellers bear the tax.

Answer 1

The spillover income effect of the tax on ink pens is that people buy more pencils because they have less after-tax income.

Step-by-step explanation:

The correct spillover income effect of the tax on ink pens is that people buy more pencils because they have less after-tax income.

When a tax is levied on ink pens, the price of pens will increase, and people will have less after-tax income to spend on goods. As a result, they may choose to buy a cheaper alternative, such as pencils, which are now relatively cheaper compared to pens.

It is important to note that the other options mentioned in the question are not spillover income effects of the tax. They are either direct effects of the tax (buying fewer books due to decreased income) or unrelated to the tax itself (buying more pencils because they are now cheaper compared to pens, or buying more ink pens because sellers bear the tax).