A tax on labor income ________ the wage rate paid by employers,________ the wage rate received by employees,and ________ a deadweight loss.

Question

Quizplus · Accepted Answer

A tax on labor income decreases the amount of income that employees receive after taxes, making work less attractive and reducing the supply of labor. As a result, the equilibrium wage rate falls, and employers pay a lower wage rate. The deadweight loss occurs as a result of the reduction in economic activity caused by the tax. Therefore, the correct option is A, where the tax increase the wage rate paid by employers and reduces the wage rate received by employees while creating a deadweight loss.

A Tax on Labor Income ________ the Wage Rate Paid