Suppose last year Moe faced a 25% marginal tax rate.This year tax rates increased and now Moe faces a 30% marginal tax rate.Moe may choose to work fewer hours this year because:
A)working hours tend to increase over a worker's life in the U.S.
B)the opportunity cost of leisure has increased.
C)the opportunity cost of leisure has fallen.
D)he must work more hours to have the same after-tax income this year.

Question

Quizplus · Accepted Answer

The opportunity cost of leisure has fallen because Moe keeps less of each additional dollar earned due to the higher tax rate, making leisure relatively cheaper.

Suppose Last Year Moe Faced a 25% Marginal Tax Rate