The following graph shows the labor market for research assistants in the fictional country of Collegia. The equilibrium wage is $10 per hour, and 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 sh e 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 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 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 th 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 g ote: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 18 Supply 16 14 12 H Demand 1 I I I WAGE (Dollars per hour) 4 2 0 0 I I 50 100 150 200 250 300 350 400 450 500 LABOR (Number of workers) Graph Input Tool Market for Research Assistants Wage (Dollars per hour) Labor Demanded (Number of workers) Demand Shifter Tax Levied on Employers (Dollars per hour) 4 310 0 Labor Supplied (Number of workers) Supply Shifter Tax Levied on Workers (Dollars per hour) 190 0
The following graph shows the labor market for research assistants in the fictional country of Collegia. The equilibrium wage is $10 per hour, and 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 sh e 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 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 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 th 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 g ote: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 18 Supply 16 14 12 H Demand 1 I I I WAGE (Dollars per hour) 4 2 0 0 I I 50 100 150 200 250 300 350 400 450 500 LABOR (Number of workers) Graph Input Tool Market for Research Assistants Wage (Dollars per hour) Labor Demanded (Number of workers) Demand Shifter Tax Levied on Employers (Dollars per hour) 4 310 0 Labor Supplied (Number of workers) Supply Shifter Tax Levied on Workers (Dollars per hour) 190 0
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:6. 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 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.
WAGE (Dollars per hour)
20
18
16
14
12
0
0
1
I
Supply
Demand
+
11
I
1 I
1 I
50 100 150 200 250 300 350 400 450 500
LABOR (Number of workers)
Graph Input Tool
Market for Research Assistants
Wage
(Dollars per hour)
Labor Demanded
(Number of workers)
Demand Shifter
Tax Levied on
Employers
(Dollars per hour)
310
0
Labor Supplied
(Number of workers)
Supply Shifter
Tax Levied on
Workers
(Dollars per hour)
(?)
190
0
Transcribed Image Text: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).
Levied on
Employers
(Dollars per hour)
4
Tax Proposal
0
2
Levied on
Workers
(Dollars per
hour)
0
4
2
Quantity Hired
(Number of
workers)
After-Tax Wage Paid by
Employers
(Dollars per hour)
O The proposal in which the entire tax is collected from workers
O The proposal in which the tax is collected from each side evenly
O The proposal in which the tax is collected from employers
O None of the proposals is better than the others
After-Tax Wage Received by
Workers
(Dollars per hour)
Suppose the government doesn't want to discourage employers from hiring research assistants and, therefore, wants to minimize the share of the tax
paid by the employers. Of the three tax proposals, which is best for accomplishing this goal?
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