2
$\begingroup$

enter image description here

Can someone help me to explain this graph and who has tax incidence more?? In which, the vertical axis means wage per hour and the horizontal axis means the number of labor hours supplied per year. And how about in the long term?

$\endgroup$

1 Answer 1

2
$\begingroup$

From the graph, we see that labour supply is perfectly inelastic, while labour demand has a (negative as usual) non-zero elasticity.

When only one of the parties is perfectly inelastic, they perceive the full tax burden.

Therefore, workers will perceive all the tax burden, while employers will perceive none of it.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.