A tax on labor causes a larger drop in equilibrium employment when:

Name: A tax on labor causes a larger drop in equilibrium employment when:
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Question

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When the labor supply curve is flat, it indicates that workers are highly responsive to changes in wages. Therefore, a tax on labor, which effectively reduces wages, will cause a larger drop in equilibrium employment compared to when the labor supply curve is steep, where workers are less responsive to wage changes.

A Tax on Labor Causes a Larger Drop in Equilibrium