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.

Question

Ashley Olson · Accepted Answer

Final Answer : A, Explanation :  When the labor supply curve is very elastic, a small decrease in the wage rate (due to a tax on labor) leads to a large decrease in the quantity of labor supplied. This sensitivity results in a large deadweight loss because the tax significantly distorts the labor market, causing a substantial gap between the amount of labor employers want to hire and the amount workers want to supply.

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.

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Learning Objectives

Related questions

If the labor supply curve is very elastic, a tax on laborA) 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.

Definitions

Learning Objectives

Learning Objectives

Related questions

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.