Microeconomics (6th Edition)
6th Edition
ISBN: 9780134106243
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 4, Problem 4.4.10PA
To determine
The impact of payroll tax on workers and employers.
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Who should pay the tax? The following graph gives the labor market for laboratory aides in the imaginary country of Paideia. The equilibrium hourly wage is $10 , and the equilibrium number of laboratory aides is 150 .
Suppose the federal government of Paideia has decided to institute an hourly payroll tax of $4 on laboratory aides and wants to determine whether the tax should be levied on the workers, the employers, or both (in such a way that hay the tax is collected from each party).
Use the graph input tool to evaluate these thret proposal5; Entering a number into the Tax Levied on Employers feld (inibialy set at adro dallars per hour) shilts the demand curve down by the amount you enter, and entering a number into the Tax Leviod on workers fieid (initially set at acro dollas per bour) shifts the supply curve up by the amount your enter. To determine the before-tax wage for each tar proposal, adjust the amcunt in the wage field unbil the quantity of labor supplied…
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…
A small province is planning to levy a hotel room tax of $20 per night on hotel owners to recover some of the costs of government services associated with nonresidents. The average price of a standard hotel room in this province before the implementation of the tax is $150 per night. Market analysts predict that the average price of a hotel room will increase to $155 per night after the tax.
a) Use the supply and demand model to illustrate and explain how the proposed tax on hotel operators will impact the market for hotels. Clearly show in your diagram and explain in words the impact on price and quantity of hotel rooms as well as the revenue raised and any deadweight loss caused by the tax.
b) Discuss how tax incidence is shared between buyers and sellers. What share of this tax is paid for by buyers, and what share is paid for by sellers?
c) What do your findings in part b tell you about the price elasticity of demand for hotel rooms compared to the price elasticity of supply?…
Chapter 4 Solutions
Microeconomics (6th Edition)
Ch. 4.A - Prob. 1RQCh. 4.A - Prob. 2RQCh. 4.A - Prob. 3RQCh. 4.A - Why would economists use the term deadweight loss...Ch. 4.A - Prob. 5PACh. 4.A - Prob. 6PACh. 4.A - Prob. 7PACh. 4.A - Prob. 8PACh. 4.A - Prob. 9PACh. 4 - Prob. 1TC
Ch. 4 - Prob. 2TCCh. 4 - Prob. 4.1.1RQCh. 4 - Prob. 4.1.2RQCh. 4 - Prob. 4.1.3RQCh. 4 - Prob. 4.1.4RQCh. 4 - Prob. 4.1.5PACh. 4 - Prob. 4.1.6PACh. 4 - Prob. 4.1.7PACh. 4 - Prob. 4.1.8PACh. 4 - Prob. 4.1.9PACh. 4 - Prob. 4.1.10PACh. 4 - Prob. 4.1.11PACh. 4 - Prob. 4.1.12PACh. 4 - Prob. 4.1.13PACh. 4 - Prob. 4.1.14PACh. 4 - Prob. 4.2.1RQCh. 4 - Prob. 4.2.2RQCh. 4 - Prob. 4.2.3PACh. 4 - Prob. 4.2.4PACh. 4 - Prob. 4.2.5PACh. 4 - Prob. 4.2.6PACh. 4 - Prob. 4.2.7PACh. 4 - Prob. 4.2.8PACh. 4 - Prob. 4.2.9PACh. 4 - Prob. 4.2.10PACh. 4 - Prob. 4.3.1RQCh. 4 - Prob. 4.3.2RQCh. 4 - Prob. 4.3.3RQCh. 4 - Prob. 4.3.4RQCh. 4 - Prob. 4.3.5PACh. 4 - Prob. 4.3.6PACh. 4 - Prob. 4.3.7PACh. 4 - Prob. 4.3.8PACh. 4 - Prob. 4.3.9PACh. 4 - Prob. 4.3.10PACh. 4 - Prob. 4.3.11PACh. 4 - Prob. 4.3.12PACh. 4 - Prob. 4.3.13PACh. 4 - Prob. 4.3.14PACh. 4 - Prob. 4.3.15PACh. 4 - Prob. 4.3.16PACh. 4 - Prob. 4.3.17PACh. 4 - Prob. 4.3.18PACh. 4 - Prob. 4.3.19PACh. 4 - Prob. 4.4.1RQCh. 4 - Prob. 4.4.2RQCh. 4 - Prob. 4.4.3RQCh. 4 - As explained in the chapter, economic efficiency...Ch. 4 - Prob. 4.4.5PACh. 4 - Prob. 4.4.6PACh. 4 - Prob. 4.4.7PACh. 4 - Prob. 4.4.8PACh. 4 - Prob. 4.4.9PACh. 4 - Prob. 4.4.10PA
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- When airfares between Santa Rosa and Los Angeles averages $69, the quantity consumed is 42,500 tickets. One day, an airline tax is levied equal to $10.00 and output falls to 37,000 tickets. Assume that air travelers end up paying 75% of the tax. Briefly describe how you would illustrate the market for air travel before the tax? Due to the tax, briefly describe what happens to supply and/or demand The tax causes the Qd of air travel to ____ and Qs of air travel to ____ The new price paid by air travelers is ____ The new price received by airlines is ______ Carefully identify the area of new consumer surplus after the tax Carefully identify the are of new producer surplus after the tax The loss of output and increase in price due to the tax creates a ____ to this market Total expenditures or sales of air travel will be____. Total revenues generated by airlines will be _____ Total tax revenue generated by the government will be ____ Total taxes paid by air…arrow_forwardWhen airfares between Santa Rosa and Los Angeles averages $69, the quantity consumed is 42,500 tickets. One day, an airline tax is levied equal to $10.00 and output falls to 37,000 tickets. Assume that air travelers end up paying 75% of the tax. Briefly describe how you would illustrate the market for air travel before the tax? Due to the tax, briefly describe what happens to supply and/or demand The tax causes the Qd of air travel to ____ and Qs of air travel to ____ The new price paid by air travelers is ____ The new price received by airlines is ______ Carefully identify the area of new consumer surplus after the tax Carefully identify the are of new producer surplus after the tax The loss of output and increase in price due to the tax creates a ____ to this market Total expenditures or sales of air travel will be____. Total revenues generated by airlines will be _____ Total tax revenue generated by the government will be ____ Total taxes paid by air…arrow_forward6. Who should pay the tax? The following graph shows the labor market for research assistants in the fictional country of Universalia. The equilibrium wage is $10 per hour, and the equilibrium number of research assistants is 250. Suppose the government has decided to institute a $4-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…arrow_forward
- 6. Who should pay the tax? The following graph shows the labor market for research assistants in the fictional country of Universalia. The equilibrium wage is $10 per hour, and the equilibrium number of research assistants is 250. Suppose the government has decided to institute a $4-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…arrow_forwardIn 1990, the U.S. Congress imposed an excise tax on yachts built in the U.S. and other high-priced luxury products such as jewelry and fur coats with a price over $100,000. The Joint Congressional Committee on Taxation predicted that these so-called “luxury taxes” would raise more than $30 million for the federal government in 1991. In fact, these taxes generated only about $16 million in revenue. Furthermore, about 7500 jobs in the U.S. boat-building industry were lost, so those workers paid less in income taxes. Putting this all together, the luxury tax led to a decrease of $7 million in government revenue rather than the predicted $30 million increase. Why didn’t the plan to raise government revenue by imposing an excise tax on luxury goods work as planned? Explain what mistake Congress made in setting the tax on luxury products.arrow_forwardSuppose a tax is levied in the market for soda. Consider a $0.50 excise tax on producers for each soda sold. The graph illustrates the demand and supply curves for soda both before and after the tax is levied. Use the graph below to answer the remaining parts of this question. d. What is the consumer surplus generated after the imposition of the tax? Shade in this area on the graph. Instructions: Use the tool provided “CStax” to illustrate this area on the graph. Consumer surplus after the imposition of the tax is $ thousand. e. What is the producer surplus generated after the imposition of the tax? Shade in this area on the graph. Instructions: Use the tool provided “PStax” to illustrate this area on the graph. Producer surplus after the imposition of the tax is $ thousand. f. What is the total revenue generated from the tax? Shade in this area on the graph. Instructions: Use the tool provided “TR” to illustrate this area on the graph. Tax…arrow_forward
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