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An increase in the average tax rate, with the marginal tax rate held constant, will

a. increase the amount of labor supplied at any real wage.
b. not affect the amount of labor supplied at any real wage.
c. decrease the amount of labor supplied at any real wage.
d. …who cares, honestly?

User Buggy B
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Answer: The correct answer is c. decrease the amount of labor supplied at any real wage.

Explanation:

When the average tax rate increases while the marginal tax rate is held constant, it means that a higher proportion of a person's income is being taxed. This reduces the incentive to work because individuals are effectively taking home a smaller share of their earnings. As a result, people may choose to work fewer hours or decide not to work at all, leading to a decrease in the amount of labor supplied at any given real wage.

User Shaun Rowan
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