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.