question archive If tax elasticity of supply is 0
Subject:EconomicsPrice:2.88 Bought3
If tax elasticity of supply is 0.8 and tax rates increase by 10 percent, the quantity of labor supplied would:
A. decrease by 1.25 percent
B. decrease by 8 percent
C. increase by 1.25 percent
D. increase by 8 percent
To calculate the increase in the quantity of labor supplied:
Percentage change in labor supplied = Tax elasticity of supply * Percentage change in the tax rates
By substituting the value
Percentage change in labor supplied = 0.8 * 10%
Percentage change in labor supplied = 8% increase
As a response in the increase in tax rates, the quantity supplied has to D. increase by 8 percent.