According to supply-side economists, as tax rates are reduced, labor supply should increase. This implies that ?

A. there is no income effect when tax rates are changed
B. the income effect of a wage change is greater than the substitution effect of a wage change.
C. there is no substitution effect when tax rates are changed
D. the substitution effect of a wage change is greater than the income effect of a wage change

Correct Answer: the substitution effect of a wage change is greater than the income effect of a wage change ✔

Last Updated: June 18, 2019