Suppose Labor and Capital Are Both Used to Produce Output

question 43

Multiple Choice

Suppose labor and capital are both used to produce output.In the long run, if the wage rate rises while the rental rate on capital remains unchanged,

• A)The process will become more labor intensive
• B)The process will become more capital intensive
• C)Market forces will come into play to bring the prices back to their earlier relationship
• D)The marginal product of capital will rise and the marginal product of labor will fall

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Definitions:

Tax Base

The total amount of assets or income that can be taxed by a governing authority, forming the essential revenue source.

Progressive Income Tax

A tax system where the tax rate increases as the taxable amount increases, placing a higher tax burden on high-income earners.

Ability-to-Pay Principle

A tax principle suggesting that taxes should be levied according to an individual or entity's capacity to pay, generally implying that those with higher incomes should pay more tax.

Proportional Income Tax

A tax system where the tax rate remains constant regardless of the amount of income, thus taxing all income levels at the same percentage.