6. Who should pay the tax? The following graph shows the labor market for resear
ID: 1127064 • Letter: 6
Question
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 $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 toof to evaluate these three proposals. Entering a number into the Tax Levied on Employers field (iitially set at zero dollars per hour) shits 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) shits 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 equais 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 18 16 14 12 Dolars per hour) Labor Number of workers) 400 100 Number of workers) Demand Shifter Supply Shifter Tax Levied on Workers Dollars per hour) Tax Levied on Dollars per hour 0 50 100 150 200 250 300 350 400 450 500 LABOR (Number of workers)Explanation / Answer
Demand shifter
Tax levied on Employers = 1
Tax levied on workers = 1
Tax Proposals
Levied on Employers
Levied on Workers
Quantity hired (No of workers)
After-tax wage paid by Employers
After-tax wage received by Workers
2
0
225
11
10
0
2
225
10
9
1
1
237
10.5
9.5
Option 2
Since it will have equal share on both, it will help to employ more
Tax Proposals
Levied on Employers
Levied on Workers
Quantity hired (No of workers)
After-tax wage paid by Employers
After-tax wage received by Workers
2
0
225
11
10
0
2
225
10
9
1
1
237
10.5
9.5
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