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

Quizplus · Accepted Answer

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