A Tax on Earned Income Will

Multiple Choice

A tax on earned income will:

A) decrease work effort because individuals can work less and still maintain their standard of living.
B) increase work effort because the opportunity cost of leisure (the net wage) is increased.
C) have an ambiguous effect on work effort because it will lower the opportunity cost of leisure, but at the same time will cause individuals to work harder so as to maintain their living standards.
D) increase work effort because the increased leisure that some individuals take as the opportunity cost of leisure falls is more than offset by the number of individuals who work harder to maintain their living standards.