True or False: The more that the labor supply decreases in response to a decrease in wages, the smaller are the supply-side effects of an increase in tax rates (that is, the decrease in output is smallerdue to a tax increase). True or False Solution False. The more the labor supply decreases due to wage fall, the greater the sensisitivty to wage change. This means for small change in wage there will greater effect on labor supply. The greater the sensitivity (elasticity) the greater is the effect of tax..