Answered: The following graph shows the labor…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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 $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.

For each of the proposals, use the previous graph to determine the new number of research assistants hired. Then compute the after-tax amount
paid by employers (that is, the wage paid to workers plus any taxes collected from the employers) and the after-tax amount earned by research
assistants (that is, the wage received by workers minus any taxes collected from the workers).
After-Tax Wage Paid by
After-Tax Wage Received by
Tax Proposal
Quantity Hired
Employers
Workers
Levied on
Levied on
(Number of
(Dollars per hour)
(Dollars per hour)
Employers
Workers
workers)
(Dollars per hour)
(Dollars per
hour)
4
4
2
2

Graph Input Tool
(?
Market for Research Assistants
20
18
I Wage
(Dollars per hour)
4
16
Supply
Labor Demanded
(Number of workers)
Labor Supplied
(Number of workers)
248
152
14
12
Demand Shifter
Supply Shifter
10
Tax Levied on
Employers
(Dollars per hour)
Tax Levied on
Workers
(Dollars per hour)
Demand
4
2
40
80 120 160 200 240 280 320 360 400
LABOR (Number of workers)
WAGE (Dollars per hour)

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