Question

The following graph shows the labor market for research assistants in the fictional country of Universalia. The equilibrium wage is $10 per hour, and the equilibrium number of research assistants is 250. 

Suppose the government has decided to institute a $4-per-hour payroll tax on research assistants and is trying to determine whether the tax should be levied on the employer, the workers, or both (such that half the tax is collected from each side). 

Use the graph input tool to evaluate these three proposals. Entering a number into the Tax Levied on Employers field ( ally set at zero dollars per hour) sits the demand curve down by the amount you enter, and entering a number into the Tax levied on Workersfield (Initially set at zero dollars per hour) Shirts the supply curve up by the amount you enter. To determine the before-tax wage for each tax proposal adjust the amount in the Wage Held until the quantity of labor supplied equals the quantity of labor demanded. You will not be graded on any changes you make to this graph. 

Note: Once you enter a value in a white rield, the graph and any corresponding amounts in each Greyfield will change accordingly. 

For each of the proposals use the previous graph to determine the new number of research Assistantshired. The compute the after tax amount paid by employers (that is, the wage paid to workers plus any taxes collected from the employers) and the after-tax amount earned by research assistants (that is, the wage received by workers minus any taxes collected from the workers) 

Suppose the government doesn't want to discourage employers from hiring research assistants and therefore, wants to minimize the share of the tax paid by the employers, or the three tax proposals, which is best for according this goal 

• The proposal in which the entire tax is collected from workers 

• The proposal in which the tax is collected from each side evenly 

• The proposal in which the tax is collected from employers 

• None of the proposals is better than the others

Answer 1

Levied on employer	Levied on worker	Quantity hired	After tax wage paid by employers	After tax wage received by workers.
4	0	100	12	8
0	4	100	12	8
2	2	100	12	8

reason- When $4, Tax is imposed on employer , demand curve shifts Downwards by $4 at each quantity.

When $4 tax is imposed on workers, supply curve shifts upwards by $4 at each quantity level.

When $2 tax each is imposed on workers and employer, demand curve shifts downward and supply curve shifts upwards by $2 at each quantity.

In all the three cases, New Equilibrium quantity =100.

● None of the proposal is better than the other.

reason- In all the three cases outcome is the same. Quantity=100.

wage paid by employers=$12

Wage received by workers=$8

As total tax=$4

This happens because the incidence of tax depends on the elasticity of demand and supply, it doesn't matter on whom the tax is imposed.