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Author Question: How are the rich able to shield large amounts of their income from sales tax while the poor ... (Read 91 times)

kamilo84

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on: Jun 29, 2018
How are the rich able to shield large amounts of their income from sales tax while the poor typically cannot?
 
  What will be an ideal response?

Question 2

Comment on the following statement: The output effect and the factor substitution effectwork in opposite directions, so it is possible that a decrease in the wage rate can lead to a decrease in the amount of labor hired.
 
  What will be an ideal response?


chem1s3

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Reply #1 on: Jun 29, 2018
Answer to Question 1

The poor typically consume all of their income and a very large percentage of it will be subject to the sales tax. By contrast the rich are able to save larger percentages of their income which effectively shield it from the sales tax.

Answer to Question 2

The statement is false. The output effect and the factor substitution effect work in the same direction. In either case, a drop in wage will lead to an increase in the amount of labor hired.


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