A tax on wages will
a. reduce labor supply since leisure becomes cheaper.
b. raise labor supply since income is reduced.
c. have an unpredictable impact on labor supply since there are both substitution and income effects.
d. have a predictable impact since economists know substitution effects will dominate.
c
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When there is a decrease in labor supply, real wages are likely to
A) remain the same. B) decrease. C) increase. D) allow less leisure time.
Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before
it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit a. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. b. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air. c. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air. d. 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.