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8) Consider our model of labour supply and labour demand. Suppose the government decreases the lump-sum...

8) Consider our model of labour supply and labour demand. Suppose the government decreases
the lump-sum tax, T. How will this shock affect the labour market equilibrium?
A) Equilibrium quantitiy of labour will go up, and equilibrium wage will go up
B) Equilibrium quantitiy of labour will go up, and equilibrium wage will go down
C) Equilibrium quantitiy of labour will go down, and equilibrium wage will go up
D) Equilibrium quantitiy of labour will go down, and equilibrium wage will go down
E) Not enough information to answer the question

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Answer #1

Option A

Explanation: The labor demand curve will shift towards the right and this will result in an increased wage and quantity of labor.

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