Assume That the Substitution Effect Dominates the Income Effect

question 78

Multiple Choice

Assume that the substitution effect dominates the income effect. When the government raises tax rates, after-tax real wage rates

• A) fall, consumption decreases, and labor supply increases.
• B) fall, consumption decreases, and labor supply decreases.
• C) rise, consumption increases, and labor supply increases.
• D) fall, consumption increases, and labor supply decreases.

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Definitions:

Behaviorism

A school of psychology that focuses on observable behaviors as the subject matter and disregards internal processes like thinking.

Belongingness Needs

A fundamental human need to form and maintain strong, stable interpersonal relationships.

Esteem Needs

These are psychological requirements for respect, self-esteem, and recognition, forming a part of Maslow's hierarchy of needs.

Psychoanalysis

A set of theories and therapeutic techniques related to the study of the unconscious mind, developed by Sigmund Freud, that aims to treat mental disorders.