5. Who should pay the tax? The following graph shows the labor market for research assistants in the fictional country of Collegia. The equilibrium wage is $10 per hour, and the equilibrium number of research assistants is 200. Suppose the government has decided to institute a $2-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. Graph Input Tool Market for Research Assistants 20 I Wage (Dollars per hour) 18 4. 16 Supply Labor Demanded (Number of workers) Labor Supplied (Number of workers) 500 14 12 10 Demand Shifter Supply Shifter Demand Tax Levied on Employers (Dollars per hour) Tax Levied on Workers (Dollars per hour) WAGE (Dollars per hour)
5. Who should pay the tax? The following graph shows the labor market for research assistants in the fictional country of Collegia. The equilibrium wage is $10 per hour, and the equilibrium number of research assistants is 200. Suppose the government has decided to institute a $2-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. Graph Input Tool Market for Research Assistants 20 I Wage (Dollars per hour) 18 4. 16 Supply Labor Demanded (Number of workers) Labor Supplied (Number of workers) 500 14 12 10 Demand Shifter Supply Shifter Demand Tax Levied on Employers (Dollars per hour) Tax Levied on Workers (Dollars per hour) WAGE (Dollars per hour)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:**Who should pay the tax?**
The following information and graph illustrate the labor market for research assistants in the fictional country of Collegia. Here, the equilibrium wage is $10 per hour, with the equilibrium number of research assistants being 200.
The government is considering implementing a $2-per-hour payroll tax on research assistants and is trying to decide whether this tax should be applied to employers, workers, or split evenly between both.
To analyze these options, use the graph input tool. By entering a number in the "Tax Levied on Employers" field, you will see the demand curve shift accordingly, while entering a value in the "Tax Levied on Workers" field shifts the supply curve. Your goal is to adjust the wage until the quantity of labor supplied matches the quantity of labor demanded.
**Note**: Modifying any white field in the tool updates both the graph and corresponding data in each grey field.
### Graph and Input Tool Explanation
**Market Graph for Research Assistants:**
- **X-Axis**: Labor (Number of workers)
- **Y-Axis**: Wage (Dollars per hour)
- **Supply Curve**: Represents the number of workers willing to offer labor at different wage levels.
- **Demand Curve**: Represents the number of workers employers are willing to hire at different wage levels.
- Initial equilibrium is marked at 200 workers with a wage of $10 per hour.
**Graph Input Tool Components:**
- **Wage (Dollars per hour):** Adjust this to match labor supply and demand.
- **Labor Demanded (Number of workers)**
- **Labor Supplied (Number of workers)**
**Demand Shifter:**
- **Tax Levied on Employers (Dollars per hour):** Input field to adjust the demand curve.
**Supply Shifter:**
- **Tax Levied on Workers (Dollars per hour):** Input field to adjust the supply curve.
### Tax Proposal Evaluation
For each proposal, use the graph to find the new number of research assistants hired. Calculate the after-tax wage paid by employers (wage plus employer taxes) and the after-tax wage received by workers (wage minus worker taxes).
| Tax Proposal | Quantity Hired | After-Tax Wage Paid by Employers | After-Tax Wage Received by Workers |
|--------------------|----------------|-----------------------------------|------------------------------------|
| Levied on Employers| 2 | | |
| Levied on Workers
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