If the tax elasticity of labor supply is 0.16, by what percentage will the quantity of labor supplied increase in response to Instructions: In part b, enter your response as a percentage rounded to one decimal place. a. A $500 per person income tax rebate check? A 4.5% increase A 2% increase A 1.5% increase No increase b. A reduction of 5 percent in marginal tax rates?

If every work receives a tax rebate of $500 per person income tax the quantity of labor supplied will not increase because the rebate is a temporary

A 4.5% increase in marginal tax = 0.16 * 4.5 = 0.72 = 0.7 (decrease in quantity of labor)

A 2% increase in marginal tax

= 0.16 * 2 = 0.32 = 0.3 (decrease in quantity of labor)

A 15% increase

= 0.16 * 15 = 2.4 (decrease in quantity of labor)

No increase = 0.16 = 0.16 (quantity of labor supplied remains unchanged)

A reduction of 5%

= 0.16 * 5 = 0.8 (increase in quantity of labor)

Explanation:

Tax elasticity of labor supply = 0.16

What percentage will the quantity of labor supplied increase in response to

A) $500 per person income tax rebate

percentage change in quantity supplied = (tax elasticity of supply) * (percentage change in tax rate) If every work receives a tax rebate of $500 per person income tax the quantity of labor supplied will not increase because the rebate is a temporary measure and does not have an effect the tax rate in the long run.

B) A 4.5% increase in marginal tax

change in the quantity of labor = tax elasticity * increase marginal tax

0.16 * 4.5 = 0.72 = 0.7 (decrease in quantity of labor)

A 2% increase in marginal tax

= 0.16 * 2 = 0.32 = 0.3 (decrease in quantity of labor)

A 15% increase

= 0.16 * 15 = 2.4 (decrease in quantity of labor)

No increase = 0.16 = 0.16 (quantity of labor supplied remains unchanged)

A reduction of 5%

= 0.16 * 5 = 0.8 (increase in quantity of labor)