If the labor supply curve is very elastic, a tax on labor: a. has a large deadwe
ID: 1169128 • Letter: I
Question
If the labor supply curve is very elastic, a tax on labor:
a. has a large deadweight loss.
b. raises enough tax revenue to offset the loss in welfare.
c. has a relatively small impact on the number of hours that workers choose to work.
d. results in a large tax burden on the firms that hire labor.
a. has a large deadweight loss.
b. raises enough tax revenue to offset the loss in welfare.
c. has a relatively small impact on the number of hours that workers choose to work.
d. results in a large tax burden on the firms that hire labor.
Explanation / Answer
An elastic labor supply curve means, if wage rate decreases, supply of labor decreases by a very large amount.
A tax on labor will decrease the net wage. So, labor supply will considerably decrease, causing a large deadweight loss.
Correct option (a)