Question: Lia Questions: Supply, demand and government policies 5. Who Should Pay the Tax? The following ca…

30 Apr Question: Lia Questions: Supply, demand and government policies 5. Who Should Pay the Tax? The following ca…

Posted at 19:39h in 2Past Paper by Exams

lia Questions: Supply, demand and government policies 5. Who Should Pay the Tax? The following calculator shows the (imaginary) labour market for research assistants in Belgium. The equilibrium wage is 10.00 per hour, and the equilibrium number of research assistants is 250 Assume the government has decided to institute a 3.00 per hour labour tax on research assistants and is trying to determine the optimal way to do so. Some argue that the employer should pay the entire tax, while others argue that the tax should fall on workers. Still others argue that the fairest way to institute the tax is to have the employer and the worker each pay half the tax. You can use the calculator to evaluate these three proposals. Entering a number into the box labelled ‘Tax Paid by Employers’ shifts the demand curve down by the amount you enter, and entering a number into the box labelled Tax Paid by Workers’ shifts the supply curve up by the amount you enter. Tool tip: Use your mouse to drag the horizontal green line on the graph. the calculator will change accordingly. You can also directly change the values in the boxes with the white backgrounds by clicking in one of the boxes and typing. The graph and any related values will change accordingly.. Note that the calculator is just here to help you answer the questions that follow; you will not be assessed on anything you do with it. The values in the baxes on the right side of Market for Labour WAGE lEuros pèr hourl 20 18 16 14 12 10 Wage Euros per hourl Labour Demanded Number of workers 10 Labour Supplied Number of workers 250 250 Supply Shifters Demand Shifters Tax Paid by Workers Eures per hourl 0 Tax Paid by Employers Eures per hour) esc F2
Demand Shifters Supply Shifters Tax Paid by Employers [Euros per hour Tax Paid by Workers Euros per hour 100 200 30 40 500 QUANTITY OF LABOUR INumber of workers For each of the proposals, use the calculator to determine the new equilibrium wage and number of research assistants employed. Then compute the after-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). Quantity Wage+ Wage Tax Proposal wage (C) Hired Employer Taxes (C) Employers pay 3.00 Workers pay CO Employers pay O Workers pay 3.00 Employers pay 1.50 LYY Workers pay 1.50 Employee Taxes (C) Of the three tax proposals, which is the most favourable to workers? O It doesn’t matter: the result is the same regardless of who pays the tax. O The proposal in which workers pay the entire tax is the most favourable. O The proposal in which each side pays half the tax is the most favourable. O The proposal in which employers pay the entire tax is the most favourable. True or False: The demand curve is more elastic than the supply curve; therefore, the economic incidence of the tax falls more heavily on the employer in both scenarios. False esc 4

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