Rhode Island has enacted a substantial increase in the tax on employers that finances the workman's compensation system.For some employers, the tax is about $25 per $100 paid in wages.Employers claim they cannot afford to pay the tax.Under which of the following conditions will the actual burden of the tax fall on employers?
A)The employers' demand for labor is perfectly elastic.
B)The supply of labor is perfectly inelastic.
C)The employers' demand for labor is perfectly inelastic.
D)The demand for the good they produce must be perfectly inelastic.

Question

Quizplus · Accepted Answer

If the employers' demand for labor is perfectly inelastic, it means that they are unable to adjust their employment level in response to changes in the tax. Therefore, the actual burden of the tax will fall entirely on the employers as they cannot pass on any of the tax to their employees in the form of lower wages or reduced benefits.

Rhode Island Has Enacted a Substantial Increase in the Tax