Please Solve All questions. Suppose the market for construction workers in the C

Question

Please Solve All questions. Suppose the market for construction workers in the Capital Region is summarized as follows: Supply: w =100 + 0.04E Demand: w = 600 – 0.01E where w is the weekly wage in dollars and E is the number of workers. d. Suppose Shoddy Construction Inc. has 20 laborers. If Shoddy were to pay $1 per week more than w*, how many additional laborers would show up to wanting to work for them? Now, consider a payroll tax assessed on firms. e. The government has decided to introduce a pay-roll tax assessed (i.e. levied) on firms. Firms have to pay $50 per week for every worker they employ. What is the new labor demand curve in the market for workers? What are the new equilibrium wage and employment level? Show this situation graphically. f. Compared with the situation before the tax was put in place, how much of the tax is effectively paid by the workers and how much is paid by the firms? Now, consider a payroll tax assessed on workers. g. Now suppose the government decides instead to make the workers pay the tax out of their wages. Each worker gets $50 deducted from his or her pay check each week. What is the new labor supply curve for laborers in the capital region? What is the new equilibrium wage and employment level? Use a graph to explain your result. h. Again, compared with the situation before the tax was put in place, how much of the tax is effectively paid by the workers and how much is paid by the firms? i. Compare your answers to (f) and to (h), what conclusion can you draw about the tax burden?

Explanation / Answer

The equilibrium condition is, Supply = Demand

100 + 0.04E = 600 – 0.01E

0.05E = 500

E = 10,000

Putting E = 10,000 in either the supply or demand equation,

100 + 0.04E = w

w = 500

d.

S has to pay $1 per week more than $500. Then wage becomes ($500 + $1 =) $501.

Labor supply would be as below:

w = 100 + 0.04E

501 = 100 + 0.04E

E = 10,025

Additional laborers = 10,025 – 20 = 10,005

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