Problem 2. The effects of a tax on labor income. Use the labor market graph below to help answer the questions. wage rate ($) 36 32 28 24 20 20 16 12 8 4 Suppl Deman Hours of work per week (millions) 200 400 600 800 1000 1200 1400 1600 1800 a.) The equilibrium wage is and the equilibrium quantity of labor is b.) Now suppose that the government imposes a tax of $6 on workers. i.) Show the effects on the graph. The new equilibrium wage is quantity of labor is ii.) How much of the $6 tax are workers actually paying? $ paying? $ iii.) Show the excess burden (deadweight loss) of the tax. iv.) What is the total tax revenue raised? $ and the equilibrium How much are their employers c.) Suppose that this is actually the Social Security tax, which levies half of the tax on workers and half of the tax on firms. Use the graph above (or paste a new one in below) that shows the effects of this tax if it were instead split between firms and workers. • What will be the new equilibrium wage now? • How much of the tax will workers pay now?

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Problem 2. The effects of a tax on labor income. Use the labor market graph below to help answer the questions.
wage rate ($)
36
32
28
24
20
20
16
12
8
4
Suppl
Deman
Hours of work per week
(millions)
200 400
600
800 1000 1200 1400 1600 1800
a.) The equilibrium wage is
and the equilibrium quantity of labor is
b.) Now suppose that the government imposes a tax of $6 on workers.
i.) Show the effects on the graph. The new equilibrium wage is
quantity of labor is
ii.) How much of the $6 tax are workers actually paying? $
paying? $
iii.) Show the excess burden (deadweight loss) of the tax.
iv.) What is the total tax revenue raised? $
and the equilibrium
How much are their employers
c.) Suppose that this is actually the Social Security tax, which levies half of the tax on workers and half of the tax
on firms.
Use the graph above (or paste a new one in below) that shows the effects of this tax if it were instead split
between firms and workers.
• What will be the new equilibrium wage now?
• How much of the tax will workers pay now?
Transcribed Image Text:Problem 2. The effects of a tax on labor income. Use the labor market graph below to help answer the questions. wage rate ($) 36 32 28 24 20 20 16 12 8 4 Suppl Deman Hours of work per week (millions) 200 400 600 800 1000 1200 1400 1600 1800 a.) The equilibrium wage is and the equilibrium quantity of labor is b.) Now suppose that the government imposes a tax of $6 on workers. i.) Show the effects on the graph. The new equilibrium wage is quantity of labor is ii.) How much of the $6 tax are workers actually paying? $ paying? $ iii.) Show the excess burden (deadweight loss) of the tax. iv.) What is the total tax revenue raised? $ and the equilibrium How much are their employers c.) Suppose that this is actually the Social Security tax, which levies half of the tax on workers and half of the tax on firms. Use the graph above (or paste a new one in below) that shows the effects of this tax if it were instead split between firms and workers. • What will be the new equilibrium wage now? • How much of the tax will workers pay now?
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