The figure given below shows the demand and supply curves of labor.A per-unit tax imposed on the wage income of the employees shifts the supply curve of labor upward.
-According to Figure 18-2,the proportion of the per-unit tax paid by employees is:
A)CB/CA.
B)BA/OB.
C)AB/CA.
D)OA/OC.

Question

The figure given below shows the demand and supply curves of labor.A per-unit tax imposed on the wage income of the employees shifts the supply curve of labor upward. 
-According to Figure 18-2,the proportion of the per-unit tax paid by employees is:
A)CB/CA. 
B)BA/OB. 
C)AB/CA. 
D)OA/OC.

Quizplus · Accepted Answer

When a per-unit tax is imposed on wage income, the supply curve of labor shifts upward, as shown in the figure. The new supply curve intersects the demand curve at point E, where the wage rate is OC and the quantity of labor supplied is OE. To calculate the proportion of the per-unit tax paid by employees, we need to find the difference in wage rates between the old equilibrium (point A) and the new equilibrium (point E). This difference is represented by the distance AB. Since the tax shifts the supply curve upward, the new equilibrium wage rate (OC) is higher than the old equilibrium wage rate (OA). Therefore, employers are able to shift part of the tax burden onto employees in the form of lower net wages. The proportion of the tax paid by employees is equal to the ratio of AB to CA, or AB/CA. This can be calculated as (OC - OA) / (OB + OA - OC), which is equivalent to AB/CA. Therefore, the correct answer is C, AB/CA.

The Figure Given Below Shows the Demand and Supply Curves