In an economy, the supply of labour is given by S = 10 + 200Wn, where...

In an economy, the supply of labour is given by S = 10 + 200Wn, where S is the quantity supplied of labour (hours of work), and Wn is the after-tax wage rate (net wage). Assume that the before-tax wage rate is fixed at $10.
1. a) Find the quantity supplied of labour and the total tax revenue at the following tax rates: 15%, 30%, 50%, 70%, and 80%.
2. b) Calculate the net wage elasticity of labour supply at each of the tax rates. Is the tax revenue positively or negatively related to the net wage elasticity? (1.5 marks)
3. c) What does the relationship between the tax rate and the tax revenue resemble? What is the tax rate that generates the highest level of tax revenue? (1.5 marks).

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Rahul Sunny answered 2 months ago

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