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?

Question

Quizplus · Accepted Answer

Since the woman does not change the number of hours she works, there is no substitution effect. The only effect of the tax on her is the decrease in her net income, which is the income effect. Therefore, the income effect is equal to the substitution effect.

Suppose That a Tax Is Levied on Wages and a Woman