For persons who earn an amount of income such that the Earned Income Tax Credit (EITC)benefit is reduced as they work more,which statement is TRUE?

Question

Quizplus · Accepted Answer

The reduction in EITC benefit as income increases creates a negative income effect. This means that individuals may work less due to the decreased financial incentive to work. However, the substitution effect, which refers to the increase in work effort when the wage rate increases, can potentially offset the negative income effect. Therefore, the overall effect of the EITC on labor supply is ambiguous, but the substitution effect alone is not enough to counteract the negative income effect for these individuals.

For Persons Who Earn an Amount of Income Such That