Question

Attempts: Keep the Highest: 12 6. Who should pay the tax? The following graph shows the labor market for research assistants in the fictional country of Academia. 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 (initially set at zero dollars per hour) shifts the demand curve down by the amount you enter, and entering a number into the Tax Levied on Workers field (initially set at zero dollars per hour) shifts 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 field 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 field, the graph and any corresponding amounts in each grey field will change accordingly.

Answer 1

When the tax of $4 is imposed on employers, they hire only 230 workers. After paying the tax, the wage rate offered by employers rises to $12 per hour and the wage rate received by workers reduces to $8 per hour. This happens as the labor demand curve shifts down by $4 at every labor hour When the tax of $4 is imposed on workers, employers hire only 230 workers. After paying the tax, the wage rate offered by employers rises to $12 per hour and the wage rate received by workers reduces to $8 per hour. This happens as the labor supply curve shifts up by $4 at every labor hour When the tax of $2 each is imposed on employers and workers, employers hire only 230 workers. After paying the tax, the wage rate offered by employers rises to $12 per hour and the wage rate received by workers reduces to $8 per hour. This happens as the labor demand curve and labor supply curve both shift by $2 at every labor hour It thus appears that no proposal is better than the other in changing the market outcome. Tax Quantity After tax wage (employers) After tax wage (workers) 230 12 $4 on employers SO on employers $2 on employers $0 on workers $4 on workers $2 on workers 12 230 230