Eliminating structural unemployment would be good for the ...

[schs14]

Eliminating structural unemployment would be good for the economy.
 
  Indicate whether the statement is true or false

Question 2

Suppose that Hawaii legalizes casino gambling. By imposing a tax on casino revenues, the state government is able to eliminate the state income tax on wages. What is likely to be the effect on the labor supply curve in Hawaii?
 
  What will be an ideal response?

[GCabra]

Answer to Question 1

FALSE

Answer to Question 2

Eliminating the income tax on wages increases the opportunity cost of leisure because the after-tax wage is now higher than it was. Workers will also earn more income for any given number of hours worked. Whether workers will end up supplying more hours at each wage rate depends on whether the substitution effect of this increase in the after-tax wage is greater than the income effect.