Suppose in the absence of a tax a firm employs 50 skilled workers at a wage rate of $20 per labor hour.If the supply of labor is perfectly inelastic,what will be the impact of a $2.50 per hour tax on the net wage received by the workers and total employment?
A)The net wage received by workers will be $17.50 per labor hour but total employment will not change.
B)The net wage received by workers will be $15 per labor hour and total employment will reduce to 25 workers.
C)The net wage received by workers will be $1750 per labor hour and total employment will reduce to 45 workers.
D)The net wage received by workers will be $15 per labor hour and total employment will increase to 75 workers.

Question

Quizplus · Accepted Answer

When the supply of labor is perfectly inelastic, the quantity of labor supplied does not change in response to changes in the wage rate. Therefore, if a $2.50 per hour tax is imposed, the workers will bear the full burden of the tax, reducing their net wage to $17.50 per labor hour ($20 - $2.50), but the total employment will not change because the supply of labor is perfectly inelastic.

Suppose in the Absence of a Tax a Firm Employs