b. results in a substitution effect that always decreases hours worked per year. c. results in an income effect that increases hours worked per year if leisure is a normal good.
d. both( a) and( b) e. both( b) and( c) 3. The market supply of labor is perfectly inelastic. Then it follows that: a. the substitution effect of wage changes is zero. b. the income effect of wage changes is zero. c. leisure is a normal good and the income effect of wage changes exactly offsets the substitution effect.
d. the excess burden of a tax on labor income will be zero. 4. The compensated labor supply curve: a. will always be vertical. b. will always be upward sloping. c. will always be downward sloping. d. reflects both the income and substitution effects of wage changes.
5. Using a regular labor supply curve instead of a compensated supply curve to calculate the excess burden of a tax on labor income will:
a. result in an accurate estimate of the excess burden. b. overestimate the excess burden. c. underestimate the excess burden.