Short Answer 
Income taxes reduce an individual’s net income, impacting their disposable income and leading to changes in spending habits. Higher taxes on goods further increase prices, forcing consumers to prioritize expenses and make choices that may limit their quality of life.
Step 1: Understanding Income Taxes
Income taxes are a percentage of an individual’s earnings that is paid to the government. This deduction directly reduces the total amount of money an individual takes home in their paycheck, known as their net income. Consequently, with less money available, individuals may have to change their spending habits or find additional income sources to maintain their lifestyle.
Step 2: Impact on Disposable Income
The reduction in net income means individuals have less disposable income to spend on non-essential items and services. As a result, they must prioritize their expenses and make careful choices about what to buy. This reduced financial flexibility can affect quality of life and limit personal spending choices.
Step 3: Taxes on Goods and Opportunity Costs
Taxes are also applied to purchased goods, increasing their final prices. Consumers often find themselves paying more for items due to these taxes. When faced with higher prices, they must assess their opportunity costs‚ÄöAithe value of foregone alternatives‚ÄöAileading to decisions that may involve:
- Choosing between essential and non-essential items.
- Delaying purchases.
- Seeking cheaper alternatives to maintain their budget.