Question 1

In the standard labor supply model,the vertical axis shows _____ and the horizontal axis shows _____.

Accepted Answer

A)  hours worked; consumption/income 
B)  consumption/income; hours of leisure 
C)  hours of leisure; hours of work 
D)  consumption/income; wage 
A)  hours worked; consumption/income 
B)  consumption/income; hours of leisure 
C)  hours of leisure; hours of work 
D)  consumption/income; wage B

Question 2

Which statement about the Earned Income Tax Credit (EITC)is TRUE?

Accepted Answer

A)  The credit is the same size for all recipients regardless of the size of the family. 
B)  The credit is refundable. 
C)  The credit is only refundable for high-income individuals. 
D)  The EITC has had no significant effect on labor force participation or work effort. 
A)  The credit is the same size for all recipients regardless of the size of the family. 
B)  The credit is refundable. 
C)  The credit is only refundable for high-income individuals. 
D)  The EITC has had no significant effect on labor force participation or work effort. B

Question 3

If the payroll tax were increased,the empirical evidence suggests that:

Accepted Answer

A)  secondary earners would work more. 
B)  primary earners would work more. 
C)  secondary earners would change their hours worked more than would primary earners. 
D)  primary earners would change their hours worked more than would secondary earners. 
A)  secondary earners would work more. 
B)  primary earners would work more. 
C)  secondary earners would change their hours worked more than would primary earners. 
D)  primary earners would change their hours worked more than would secondary earners. C

Question 4

Which statement about the estimated effects of the Earned Income Tax Credit (EITC)on labor supply is TRUE?

Accepted Answer

A)  The 1986 expansion of the EITC did not increase the labor market participation of single mothers. 
B)  The 1986 expansion of the EITC did not affect the number of hours worked by those already in the labor force. 
C)  The 1986 expansion of the EITC reduced the number of hours worked by those in the labor force. 
D)  Researchers were not able to study the effects of the 1986 expansion of the EITC. 
A)  The 1986 expansion of the EITC did not increase the labor market participation of single mothers. 
B)  The 1986 expansion of the EITC did not affect the number of hours worked by those already in the labor force. 
C)  The 1986 expansion of the EITC reduced the number of hours worked by those in the labor force. 
D)  Researchers were not able to study the effects of the 1986 expansion of the EITC.

Question 5

The substitution effect of child care expenditures induces parents to _________; the income effect of child care expenditures induces parents to __________.

Accepted Answer

A)  work more; work more 
B)  work more; work less 
C)  work less; work less 
D)  work less; work more 
A)  work more; work more 
B)  work more; work less 
C)  work less; work less 
D)  work less; work more

Question 6

Cross-sectional regression analyses that identify the effect of taxes on labor supply may be biased because:

Accepted Answer

A)  people who earn high wages may have a higher preference for work than do people who earn low wages. 
B)  people who earn low wages may have a higher preference for work than do people who earn high wages. 
C)  all people used in such studies work the same number of hours. 
D)  everyone receives the same amount of utility from leisure time. 
A)  people who earn high wages may have a higher preference for work than do people who earn low wages. 
B)  people who earn low wages may have a higher preference for work than do people who earn high wages. 
C)  all people used in such studies work the same number of hours. 
D)  everyone receives the same amount of utility from leisure time.

Question 7

If the tax rate on income is given by t and the wage is given by w,what is the slope of the indifference curve at the optimal choice? (Assume that the person is not at a corner of the budget constraint.)

Accepted Answer

A)  the slope of the indifference curve depends on preferences. 
B)  w - t + 1 
C)  w(t - 1) 
D)  w(1 - t) 
A)  the slope of the indifference curve depends on preferences. 
B)  w - t + 1 
C)  w(t - 1) 
D)  w(1 - t)

Question 8

The effect of nonlabor income on labor supply has ________; the effect of after-tax wages on labor supply has ________.

Accepted Answer

A)  substitution and income effects; substitution and income effects 
B)  substitution effects; income effects 
C)  income effects; substitution and income effects 
D)  income effects; substitution effects 
A)  substitution and income effects; substitution and income effects 
B)  substitution effects; income effects 
C)  income effects; substitution and income effects 
D)  income effects; substitution effects

Question 9

Which statement best describes the current Earned Income Tax Credit (EITC)program?

Accepted Answer

A)  As earnings increase from zero,the EITC increases at a decreasing rate until it reaches the maximum. 
B)  As earnings increase from zero,the EITC increases at a constant rate until it reaches the maximum. 
C)  As earnings increase from zero,the EITC increases and then decreases until it is zero. 
D)  As earnings increase from zero,the EITC decreases at a constant rate until it is zero. 
A)  As earnings increase from zero,the EITC increases at a decreasing rate until it reaches the maximum. 
B)  As earnings increase from zero,the EITC increases at a constant rate until it reaches the maximum. 
C)  As earnings increase from zero,the EITC increases and then decreases until it is zero. 
D)  As earnings increase from zero,the EITC decreases at a constant rate until it is zero.

Question 10

Suppose that a tax is levied on wages and a woman does not change the number of hours she works.Which of the following statements is TRUE?

Accepted Answer

A)  The substitution effect exceeds the income effect. 
B)  The income effect exceeds the substitution effect. 
C)  The income effect is equal to substitution effect. 
D)  There is no income effect. 
A)  The substitution effect exceeds the income effect. 
B)  The income effect exceeds the substitution effect. 
C)  The income effect is equal to substitution effect. 
D)  There is no income effect.

Question 11

If the payroll tax were to be lowered,empirical evidence suggests that:

Accepted Answer

A)  secondary earners would work more hours. 
B)  primary earners would work fewer hours. 
C)  labor force participation among secondary workers would be reduced. 
D)  worker hours remain unchanged. 
A)  secondary earners would work more hours. 
B)  primary earners would work fewer hours. 
C)  labor force participation among secondary workers would be reduced. 
D)  worker hours remain unchanged.

Question 12

Suppose that as a policy maker,you have three options for expanding the Earned Income Tax Credit (EITC)using a given increase in your budget.
Option 1: Increase the compensation rate in the phase-in portion of the EITC schedule.
Option 2: Increase the maximum tax credit a person can receive.
Option 3: Lower the rate of reduction in the phase-out portion of the EITC schedule.
(a)Suppose that the goal of your agency is to increase the size of the labor force.Which option would meet this goal in the most cost-effective manner? Explain.
(b)Suppose that you chose Option 2.Explain in terms of income and substitution effects how your choice would affect someone who is on the phase-out portion of the EITC schedule.

Accepted Answer

(a)Option 1 would be the best bet.Increa

Question 13

Discuss fundamental labor supply elasticity differences with respect to after-tax wages of primary earners and secondary earners.

Accepted Answer

The elasticity of labor supply with resp

Question 14

Suppose that the spouse of the primary earner in the household is considering joining the labor force.The spouse cares for two children and if employed would earn $20 per hour for 40 hours per week.The total cost of child care would be $15 per hour for 40 hours per week.Assume that child care is NOT tax deductible and that child care at home is NOT imputed and taxed.Assume that the spouse is indifferent between working and staying at home except for the financial impact.What would be the marginal tax rate such that the spouse is indifferent between entering the labor force and providing child care at home?

Accepted Answer

A)  0% 
B)  25% 
C)  50% 
D)  100% 
A)  0% 
B)  25% 
C)  50% 
D)  100%

Question 15

If a person responds to a tax on wages by working the same number of hours,then the:

Accepted Answer

A)  substitution effect exceeds the income effect. 
B)  substitution effect induces the individual to work more. 
C)  income effect exceeds the substitution effect. 
D)  income effect exactly offsets the substitution effect. 
A)  substitution effect exceeds the income effect. 
B)  substitution effect induces the individual to work more. 
C)  income effect exceeds the substitution effect. 
D)  income effect exactly offsets the substitution effect.

Question 16

Suppose that the spouse of the primary earner in the household is considering joining the labor force.The spouse cares for two children and if employed would earn $20 per hour for 40 hours per week.The total cost of child care would be $10 per hour for 50 (not 40)hours per week.Assume that the marginal tax rate on work is 50%.Assume that child care is NOT tax deductible and that child care at home is imputed and taxed.How much more would the government collect in tax revenues if the spouse chose to join the labor force rather than stay at home?

Accepted Answer

A)  -$100 
B)  $0 
C)  $150 
D)  $300 
A)  -$100 
B)  $0 
C)  $150 
D)  $300

Question 17

Nada Eissa's studies of the impact of the Tax Reform Act of 1986 on labor supply are an example of which type of approach to estimating the elasticity of labor supply? Hint: Eissa used the fact that the Tax Reform Act of 1986 affected very high income and moderately high income people differently.

Accepted Answer

A)  random experiment 
B)  cross-sectional regression 
C)  time series 
D)  quasi-experiment 
A)  random experiment 
B)  cross-sectional regression 
C)  time series 
D)  quasi-experiment

Question 18

For someone who is not working at all without the Earned Income Tax Credit (EITC),which statement is true when the person is subject to the EITC,once he starts working?

Accepted Answer

A)  The income effect of the EITC induces the person to work more. 
B)  The substitution effect of the EITC induces the person to work more. 
C)  There is no substitution effect. 
D)  There is no income effect. 
A)  The income effect of the EITC induces the person to work more. 
B)  The substitution effect of the EITC induces the person to work more. 
C)  There is no substitution effect. 
D)  There is no income effect.

Question 19

Suppose that a tax is levied on wages and a person responds by working more.Which of the following statements is TRUE?

Accepted Answer

A)  The after-tax wage is the effective price of leisure. 
B)  The substitution effect induces the person to work more. 
C)  The income effect induces the person to work less. 
D)  The substitution effect is offset by the income effect. 
A)  The after-tax wage is the effective price of leisure. 
B)  The substitution effect induces the person to work more. 
C)  The income effect induces the person to work less. 
D)  The substitution effect is offset by the income effect.

Question 20

Discuss the two major limitations of the basic theory of taxation's effect on labor supply.

Accepted Answer

The theory assumes an idealized view of

Exam 21: Taxes on Labor Supply

In the standard labor supply model,the vertical axis shows _____ and the horizontal axis shows _____.

Which statement about the Earned Income Tax Credit (EITC)is TRUE?

If the payroll tax were increased,the empirical evidence suggests that:

Which statement about the estimated effects of the Earned Income Tax Credit (EITC)on labor supply is TRUE?

The substitution effect of child care expenditures induces parents to _________; the income effect of child care expenditures induces parents to __________.

Cross-sectional regression analyses that identify the effect of taxes on labor supply may be biased because:

If the tax rate on income is given by t and the wage is given by w,what is the slope of the indifference curve at the optimal choice? (Assume that the person is not at a corner of the budget constraint.)

The effect of nonlabor income on labor supply has ________; the effect of after-tax wages on labor supply has ________.

Which statement best describes the current Earned Income Tax Credit (EITC)program?

Suppose that a tax is levied on wages and a woman does not change the number of hours she works.Which of the following statements is TRUE?

If the payroll tax were to be lowered,empirical evidence suggests that:

Discuss fundamental labor supply elasticity differences with respect to after-tax wages of primary earners and secondary earners.

If a person responds to a tax on wages by working the same number of hours,then the:

Nada Eissa's studies of the impact of the Tax Reform Act of 1986 on labor supply are an example of which type of approach to estimating the elasticity of labor supply? Hint: Eissa used the fact that the Tax Reform Act of 1986 affected very high income and moderately high income people differently.

For someone who is not working at all without the Earned Income Tax Credit (EITC),which statement is true when the person is subject to the EITC,once he starts working?

Suppose that a tax is levied on wages and a person responds by working more.Which of the following statements is TRUE?

Discuss the two major limitations of the basic theory of taxation's effect on labor supply.

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Filters

In the standard labor supply model,the vertical axis shows _ and the horizontal axis shows _.

The substitution effect of child care expenditures induces parents to _; the income effect of child care expenditures induces parents to __.

The effect of nonlabor income on labor supply has ; the effect of after-tax wages on labor supply has .