Question

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2. 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

supply WAGE (Dollars per hour) Demand 0 AH 0 50 100 150 200 250 300 350 400 450 500 LABOR (Number of workers)

Levied on employers	Levied on workers	Quantity hired	Wage paid by employers	Wage received by workers
4	0	125	12	8
0	4	125	12	8
2	2	125	12	8

None of the proposals is better than the others