Hep Save Et Submit 2 Problem 1-50 (LO 1-3, LO 1-5) (Algo) Merrick earns $134,000 taxable income as an landscape designer and is taxed at an average rate of 20 percent ($26.800 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Merrick's average tax rate increases from 20 percent to 25 percent. a. What will happen to the government's tax revenues if Merrick chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $100,500 in taxable income? 25 DOM Som Government's tax revenues would decrease by $1,675 Government's tax revenues would increase by $1675 Government's tax revenues would decreme by $1.925 Government's tax revenues would increase by $1.925 Government's tax revenues would remain unchanged b. What is the term that describes this type of reaction to a tax rate increase? 2 Endowment effect Price effect 2.5 points Substitution effect 01:16:56 Budget constraint Income effect c. What types of taxpayers are likely to respond in this manner? Taxpayers with less disposable income Taxpayers with more disposable income