Question

which statement is true?group of answer choicesin labor markets, workers always bear the full burden of a tax.in labor markets, workers bear the full burden of a tax only when the tax is levied on workers.in labor markets, workers bear more of the burden of a payroll tax if labor supply is highly inelastic.tax incidence is based on which party has the legal obligation to pay a tax.

Answer 1

The true statement regarding labor markets is that workers bear more of the burden of a payroll tax if labor supply is highly inelastic, as the side of the market that is less elastic tends to bear the majority of the tax burden.

Step-by-step explanation:

The statement that workers bear more of the burden of a payroll tax if labor supply is highly inelastic is the true statement in relation to labor markets and tax incidence. When the supply of labor is inelastic, workers are less responsive to wage changes, meaning that they are more likely to absorb the costs of the tax, resulting in workers bearing a larger share of the tax burden.

This concept is in line with the general principle that the side of the market that is less elastic tends to bear the majority of the tax burden. Therefore, whether it is a payroll tax or another kind of tax, the incidence—or how the tax burden is divided between employers and employees—depends on the relative elasticity of supply and demand.

Tax incidence is not based solely on who has the legal obligation to pay the tax, but rather on how the burden is distributed based on market elasticities. This is why the incidence of a tax can fall on workers even if the tax is legally levied on employers, and vice versa.