refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-Which one of the following events could not have caused a shift from isoprofit line 1 to line 2?
A)The employer's share of the payroll tax rate has increased and the limits expanded
B)Firms structured fringe benefits so as to increase worker productivity
C)The government began to subject some fringe benefits to the personal income tax
D)Insurance companies offered group discounts for medical and disability coverage

Question

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-Which one of the following events could not have caused a shift from isoprofit line 1 to line 2?
A)The employer's share of the payroll tax rate has increased and the limits expanded 
B)Firms structured fringe benefits so as to increase worker productivity 
C)The government began to subject some fringe benefits to the personal income tax 
D)Insurance companies offered group discounts for medical and disability coverage

Quizplus · Accepted Answer

The government began to subject some fringe benefits to the personal income tax. This would make fringe benefits less attractive to workers, and therefore would not cause a shift from isoprofit line 1 to line 2.

Refer to the Diagram Below