The amount by which taxes increase when before-tax income rises by an additional dollar is called the:

Question

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The amount by which taxes increase when before-tax income rises by an additional dollar is called the marginal tax rate. The marginal tax rate is important in decision-making because it measures the incentive to work, save or invest. It is also the rate applied to the last dollar of income earned. The other options are not correct in this context. The average tax rate is the total tax paid divided by total income. The substitution effect measures the change in the consumption of goods and services due to a change in price. Opportunity cost is the value of the next best alternative foregone.

The Amount by Which Taxes Increase When Before-Tax Income Rises