Discussion
In a competitive market, a tax on wage income falls wholly on labour if :
Answer: A
In a competitive market a tax on wage income falls wholly on labour if the supply of labour is inelastic, because workers cannot reduce the quantity of labour they offer in response to the lower take-home pay, so employers do not have to raise the wage to compensate. If labour supply is elastic or highly elastic, as in options B and C, workers withdraw labour and part of the burden moves to employers. Option D concerns the elasticity of product demand and is not relevant to the incidence of a tax on wages.
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