In Order to Obtain the Substitution Effect of a Wage

question 16

Multiple Choice

In order to obtain the substitution effect of a wage change:

• A) One traces the change in output as firms respond to it.
• B) One traces the change in the quantity demanded of labour by moving along an isoquant curve as the prices change.
• C) One moves either up or down the labour demand curve.
• D) One traces the change of the quantity demanded of labour through a parallel shift in the isocost line.
• E) One needs to first know the wage elasticity of demand for labour.

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Definitions:

Regressive Taxation

The tax as a percentage of income decreases as income increases.

Progressive Taxation

Progressive taxation is a tax system where the tax rate increases as the taxable amount or income of the taxpayer increases, making it proportionally more significant for higher-income earners.

Proportional Taxation

A tax system where the tax rate is fixed and does not change with the income level of the taxpayer, implying everyone pays the same percentage of their income in taxes.

Regressive Taxation

A tax system where the tax rate decreases as the taxable amount increases, meaning lower-income individuals pay a higher percentage of their income compared to higher-income earners.