Multiple Choice
What happens to the acceptable wage rate at each level of employment once an income tax is levied on labor income?
A) Nothing, it remains the same.
B) It increases by the amount of the tax that must be paid.
C) Workers and employers split the tax, so the acceptable wage increases by half the tax.
D) Because workers have to work more to make up for the tax, the acceptable wage rate falls by some amount that cannot be determined.
E) Because workers have to work more to make up for the tax, the acceptable wage rate falls by the precise amount of the tax that must be paid.
Correct Answer:
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