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 150.

Suppose the government has decided to institute a $6-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 each pays half the tax).

Use the graph input tool to evaluate these three proposals. Entering a number into the Tax Paid by 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 Paid by Workers field (initially set at zero dollars per hour) shifts the supply curve up by the amount you enter. 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.

For each of the proposals, use the previous graph to determine the new equilibrium wage and number of research assistants hired. Then compute theafter-tax amount paid by employers (that is, the equilibrium wage plus any taxes the employer pays) and the after-tax amount earned by research assistants (that is, the equilibrium wage minus any taxes the worker pays).

Suppose the government doesn?t want to discourage employers from hiring research assistants and, therefore, wants to minimize the share of the tax paid by the employers. Of the three tax proposals, which is best for accomplishing this goal?

A-The proposal in which workers pay the entire tax

B-The proposal in which each side pays half the tax

C-The proposal in which employers pay the entire tax

D-None of the proposals is better than the others

Transcribed Image Text:

WAGE (Dollars per hour) 20 18 16 14 12 10 8 (0 4 2 0 | I Supply Demand 0 30 60 90 120 150 180 210 240 270 300 LABOR (Number of workers) Graph Input Tool Market for Research Assistants Wage (Dollars per hour) Labor Demanded (Number of workers) Demand Shifter Tax Paid by Employers (Dollars per hour) 4 186 0 Labor Supplied (Number of workers) Supply Shifter Tax Paid by Workers (Dollars per hour) 114 0 Tax Proposal Employers Pay... (Dollars per hour) 6 0 3 لیا Workers Pay... (Dollars per hour) 0 6 3 Wage (Dollars per hour) Quantity Hired (Number of workers) Wage + Employers's Taxes (Dollars per hour) Wage - Workers's Taxes (Dollars per hour) WAGE (Dollars per hour) 20 18 16 14 12 10 8 (0 4 2 0 | I Supply Demand 0 30 60 90 120 150 180 210 240 270 300 LABOR (Number of workers) Graph Input Tool Market for Research Assistants Wage (Dollars per hour) Labor Demanded (Number of workers) Demand Shifter Tax Paid by Employers (Dollars per hour) 4 186 0 Labor Supplied (Number of workers) Supply Shifter Tax Paid by Workers (Dollars per hour) 114 0 Tax Proposal Employers Pay... (Dollars per hour) 6 0 3 لیا Workers Pay... (Dollars per hour) 0 6 3 Wage (Dollars per hour) Quantity Hired (Number of workers) Wage + Employers's Taxes (Dollars per hour) Wage - Workers's Taxes (Dollars per hour)

Answer rating: 100% (QA)

Case I Tax amount of 6 per hour payroll tax is paid by the employers In this case the demand curve w... View the full answer