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Question 2 A government considers a proposal to add a tax on employees' salaries. Assume that the labor market is perfectly competitive (free entry market). You can ignore long- run effects and externality on other markets. a) Suppose that each employee pays a certain percentage of the employee's wages in tax. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay the tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Market wage will (Circle one): Increase Decrease No Change Uncertain Employment level will (Circle one): Increase Decrease No Change Uncertain b) Now suppose that both employers and employees pay a tax equal to the same percentage of employee's wages. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay their tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Decrease No change Uncertain Market wage will (Circle one): Increase Employment level will (Circle one): Increase Decrease No Change Uncertain

Question 2 A government considers a proposal to add a tax on employees' salaries. Assume that the labor market is perfectly competitive (free entry market). You can ignore long- run effects and externality on other markets. a) Suppose that each employee pays a certain percentage of the employee's wages in tax. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay the tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Market wage will (Circle one): Increase Decrease No Change Uncertain Employment level will (Circle one): Increase Decrease No Change Uncertain b) Now suppose that both employers and employees pay a tax equal to the same percentage of employee's wages. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay their tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Decrease No change Uncertain Market wage will (Circle one): Increase Employment level will (Circle one): Increase Decrease No Change Uncertain

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter13: General Equilibrium And Welfare
Section: Chapter Questions
Problem 13.14P
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Question 2 A government considers a proposal to add a tax on employees' salaries. Assume that the labor market is perfectly competitive (free entry market). You can ignore long- run effects and externality on other markets. a) Suppose that each employee pays a certain percentage of the employee's wages in tax. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay the tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Market wage will (Circle one): Increase Decrease No Change Uncertain Employment level will (Circle one): Increase Decrease No Change Uncertain b) Now suppose that both employers and employees pay a tax equal to the same percentage of employee's wages. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay their tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Market wage will (Circle one): Increase Decrease No change Uncertain Employment level will (Circle one): Increase No Change Uncertain Decrease
Transcribed Image Text:Question 2 A government considers a proposal to add a tax on employees' salaries. Assume that the labor market is perfectly competitive (free entry market). You can ignore long- run effects and externality on other markets. a) Suppose that each employee pays a certain percentage of the employee's wages in tax. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay the tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Market wage will (Circle one): Increase Decrease No Change Uncertain Employment level will (Circle one): Increase Decrease No Change Uncertain b) Now suppose that both employers and employees pay a tax equal to the same percentage of employee's wages. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay their tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Market wage will (Circle one): Increase Decrease No change Uncertain Employment level will (Circle one): Increase No Change Uncertain Decrease
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