Determine whether each of the following statements are true, false, or uncertain

Question

Determine whether each of the following statements are true, false, or uncertain, and explairn why. Points will be given entirely based upon your justification. 1. Suppose that the elasticity of supply for labor is +0.5 and the elasticity of demand for labor is -1.5. If a payroll tax of $4.00 per hour worked is levied on employers, the employers will have a per-unit incidence of $1.00, whereas if the tax is imposed on employees, the employers will bear $3.00. 2. UE students enrolled in a particular business class are required to subscribe to the Wall Street Journal, which are then delivered to Kim at the front desk, free for all students regardless of enrollment to pick up. There are always newspapers left over at the end of the day however. TFU: Since the extra benefits (WSJs) bestowed upon non-business students are not considered when choosing to enroll or not, the number enrolled in the business class is inefficiently low.

Explanation / Answer

1) ans is true because

We know tax burden on consumer/ tax burden on seller(producer)=-Es/Ed=-.5/1.5=0.33

Thus consumer incidence=0.33 producer burden

Thus when payroll tax of $4 is implemented then $3 will be the tax burden shared by seller(producer) employer and $1 will be beard by employees.

2) true becaus won case of positive externality, output is produced to less compared to efficient output

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