6. Who should pay the tax? Part 2The 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 200.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 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. Graph Input ToolMarket for Research Assistants2018I Wage(Dollars per hour)16SupplyLabor Demanded(Number of workers)Labor Supplied(Number of workers)5001412Demand ShifterSupply Shifter10DemandTax Levied onTax Levied onEmployers(Dollars per hour)Workers(Dollars per hour)624080 120 160 200 240 280 320 360 400LABOR (Number of workers)For each of the proposals, use the previous graph to determine the new number of research assistants hired. Then compute the after-tax amountpaid by employers (that is, the wage paid to workers plus any taxes collected from the employers) and the after-tax amount earned by researchassistants (that is, the wage received by workers minus any taxes collected from the workers).After-Tax Wage Paid byAfter-Tax Wage Received byТах ProposalQuantity HiredEmployersWorkersLevied onLevied on(Number of(Dollars per hour)(Dollars per hour)EmployersWorkersworkers)(Dollars per hour)(Dollars perhour)1Suppose the government is concerned that research assistants already make too little money and, therefore, wants to minimize the share of the taxpaid by employees. Of the three tax proposals, which is best for accomplishing this goal?O The proposal in which the entire tax is collected from workersThe proposal in which the tax is collected from each side evenlyThe proposal in which the tax is collected from employersNone of the proposals is better than the othersWAGE (Dollars per hour)

Answered: Who should pay the tax? Part 2 The…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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6. Who should pay the tax? Part 2

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 200.

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 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.

Graph Input Tool
Market for Research Assistants
20
18
I Wage
(Dollars per hour)
16
Supply
Labor Demanded
(Number of workers)
Labor Supplied
(Number of workers)
500
14
12
Demand Shifter
Supply Shifter
10
Demand
Tax Levied on
Tax Levied on
Employers
(Dollars per hour)
Workers
(Dollars per hour)
6
2
40
80 120 160 200 240 280 320 360 400
LABOR (Number of workers)
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).
After-Tax Wage Paid by
After-Tax Wage Received by
Тах Proposal
Quantity Hired
Employers
Workers
Levied on
Levied on
(Number of
(Dollars per hour)
(Dollars per hour)
Employers
Workers
workers)
(Dollars per hour)
(Dollars per
hour)
1
Suppose the government is concerned that research assistants already make too little money and, therefore, wants to minimize the share of the tax
paid by employees. Of the three tax proposals, which is best for accomplishing this goal?
O The proposal in which the entire tax is collected from workers
The proposal in which the tax is collected from each side evenly
The proposal in which the tax is collected from employers
None of the proposals is better than the others
WAGE (Dollars per hour)

Expert Solution

Step 1

The study of labour economics seeks to comprehend the operation and dynamics of wage labour markets. Labor is a commodity provided by labourers in exchange for a wage paid by demanding firms. The labour market, also known as the job market, refers to the supply and demand for labour, with employees supplying the supply and employers supplying the demand. It is an important part of any economy and is inextricably linked to capital, goods, and services markets. A labour market is a location where workers and employees interact with one another.A tax is a charge imposed by the government to generate revenue.

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