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 100. bols Suppose the government has decided to institute a 34-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 (initaly 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 dollers 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 Meld 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. Graph Input Tool 20 Market for Research Assistants 16 Wage (Dos per hour Labor Demanded (Number of ws) 14 Supply 160 Labor Supplied (Mumber of Choud Demand Shifter Supply Shifter Demand Tax levied on Employers 4 Thx Levied on Workers (Doors per 0.00 +0. Tv ! 0 20 40 60 80 100 120 140 100 100 100 LABOR Number of workers

Answer 1

Case I

Tax amount of $4 per hour payroll tax is paid by the employers.

In this case, the demand curve shifts downwards by $4. The new intersection of the supply and demand curve will occur at the wage of $8 and the employment level of 50 workers.

20 18 16 Supply 14 12 WAGE (Dollars per hour) 10 Demand 2 0 50 0 20 40 60 80 100 120 140 160 180 200 LABOR (Number of workers)
Case II

Tax amount of $4 per hour payroll tax is paid by workers.

In this case, the supply curve shifts upwards by $4. The new intersection of the supply and demand curve will at the wage rate of the $12 and employment level of 50 workers.

20 18 16 Supply 14 12 WAGE (Dollars per hour) 10 8 Demand 6 2 0 0 20 405060 80 100 120 140 160 180 200 LABOR (Number of workers)
Case III

Tax amount of $4 per hour payroll tax is paid equally by the employers and workers.

In the case, the demand curve shifts downwards by $2 and the supply curve shifts upwards $2. The new intersection of the supply and demand curve will occur at the wage rate of $10 and an employment level of 50 workers.

20 18 16 supply 14 12 WAGE (Dollars per hour) 10 8 Demand 6 4 2 0 0 50 20 40 60 80 100 120 140 160 180 200 LABOR (Number of workers)
The table below shows the amount of tax and employment:

Employers pay tax S4 0 S2 Workers pay tax 0 $4 $2 Wages Quantity hired Wage + Employer's Wage-Workers' taxes taxes S8 50 $12 (58+S4) $8 (S8-0) $12 50 $12 ($12+0) $8 ($12-S4) $10 50 $12 ($10+$2) $8 (S10-S2)
In the each of the proposals, the quantity hired remains the same. The wage paid by the employers is $12 per hour and the wage received by the workers is $8.