Labor supply curve is perfectly inelastic

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Figure 4-6 shows that a payroll tax will be completely shifted to workers when the labor supply curve is perfectly inelastic. In this case, for example, a new $2 payroll tax will lower the wage by $2, will not affect employment, and will not result in any deadweight loss. Suppose instead that labor supply is perfectly elastic at a wage of $10. In this case, what would be the effect on wages, employment, and deadweight loss from a $2 payroll tax?

Reference no: EM13888591

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