Supply-side economists argue that lowering tax rates leads to an increase in labor supply. What does this suggest about the effects of wage changes?

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Tax changes have no impact on the income effect.The income effect of a wage adjustment outweighs the substitution effect.There is no substitution effect when taxes are altered.The substitution effect of a wage change surpasses the income effect.

Explanation

Supply-side theory posits that when wages increase due to lower taxes, workers are motivated to supply more labor because the substitution effect (working more due to higher wages) dominates the income effect (working less because of higher income). Therefore, the substitution effect is stronger than the income effect.