Question

In: Economics

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.

a) Find the quantity supplied of labour and the total tax revenue at the following tax rates: 15%, 30%, 50%, 70%, and 80%.

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?

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?

Solutions

Expert Solution

(a) The quantity supplied of labor and tax revenue at different tax rates are calculated in the tables below. The top table shows the calculated values, where as the bottom table presents the formula view.

(b) From the labor supply function, the net wage elasticity can be calculated as (dS/dWn)(Wn/S) = 200Wn/S. Accordingly, the elasticity numbers are shown in the top table and the formula can be found in the bottom table above. The diagram below shows the relationship of elasticity and tax revenue. They have both positive as well as negative relationship for different ranges as can be observed.

(c) The relationshop between tax rate and tax revenue can be presented below.

As can be observed, tax revenue is maximum at 50% tax rate.


Related Solutions

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. a) Find the quantity supplied of labour and the total tax revenue at the following tax rates: 15%, 30%, 50%, 70%, and 80%. b) Calculate the net wage elasticity of labour supply at each of...
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. a) Find the quantity supplied of labour and the total tax revenue at the following tax rates: 15%, 30%, 50%, 70%, and 80%. b) Calculate the net wage elasticity of labour supply at each of...
Suppose an individual’s weekly labour supply is given by L = -10 + w, where L...
Suppose an individual’s weekly labour supply is given by L = -10 + w, where L is labour supply in hours and w is the hourly after-tax wage. Assume that firms are willing to pay a before-tax wage of $40/hr. In the absence of taxation, how many hours per week will the individual work? What are weekly earnings? Illustrate the choice in a diagram. [4] Suppose the government institutes a 25% tax on labour income. What is the after tax...
Consider the case where the demand curve and supply curve for unskilled labour are given in...
Consider the case where the demand curve and supply curve for unskilled labour are given in the following table: (1) Wage Rate (/hour) (2) Wage Rate2 (/hour) (3) Q of Labour Demanded (hrs/week) (4) Wage Rate2 (/hour) (5) Q of Labour Supplied (hrs/week) 9.5 1000 1900 9 1200 1800 8.5 1400 1700 8 1600 1600 7.5 1800 1500 7 2000 1400 6.5 2200 1300 1. What is the equilibrium wage rate?     2. What is the quantity of labour hours hired...
(R & G) In an economy, the supply curve of labor, S, is given by S...
(R & G) In an economy, the supply curve of labor, S, is given by S = - 100 + 200 Wn where Wn is the after-tax wage rate. Assume that the before-tax wage rate is fixed at 10. (a) Write a formula for tax revenues as a function of the tax rate, and sketch the function in a diagram with the tax rate on the horizontal axis and tax revenues on the vertical axis. (wn = (1 - t)10...
Demand for labour is LD = 45 – 4W, labour supply is LS = 8W, where...
Demand for labour is LD = 45 – 4W, labour supply is LS = 8W, where W is hourly wage and L is labour measured in thousands of labour hours per year. a) Find equilibrium employment and wage in a competitive labour market. b) Suppose government introduces minimum wage at Wmin = $4. Calculate and show on diagram the number of jobs destroyed and the resulting unemployment. c) Suppose that government introduces a wage subsidy program per hour: for each...
The supply curve for agricultural labour is given by W=6+0.1L, where is the wage (price per...
The supply curve for agricultural labour is given by W=6+0.1L, where is the wage (price per unit) and the L quantity traded. Employers are willing to pay a wage of $12 to all workers who are willing to work at that wage; hence the demand curve isW=12.(a) Illustrate the market equilibrium, if you are told that the equilibrium occurs where L=60. (b) Compute the supplier surplus at this equilibrium.
Both men and women have the following labour supply L(s)=0.5W L is the labour supply in...
Both men and women have the following labour supply L(s)=0.5W L is the labour supply in hours and W is the hourly wage, including in kind payments. Judy’s gym has 4 female managers and 2 male managers. She needs each manager to work 8 hours per day. What is the equilibrium wage required to induce a (male or female) worker to supply 8 hours of work? Assume that, through a deal that is free to Judy, Judy can provide managers...
Suppose there are 100 workers in the economy, with overall labour supply LS=100. There are two sectors, the labour demand in A is given by LDA=120-2wA and labour demand in B is given by LDB=100-4wB.
Suppose there are 100 workers in the economy, with overall labour supply LS=100. There are two sectors, the labour demand in A is given by LDA=120-2wA and labour demand in B is given by LDB=100-4wB.A. If the neoclassical model of perfect competition holds, such that wA = w and wB = w, the formula for the total aggregate labour demand is: LD= ________ (simplify formula before entering). Graph this aggregate demand along with the aggregate supply. The competitive wage will...
Consider the following demand and supply equations in the market for labour. Supply: W = 10...
Consider the following demand and supply equations in the market for labour. Supply: W = 10 + (1/3) L Demand: W = 1,000 − (2/3) L Show your work as you respond to the following questions. What is the market equilibrium wage and quantity? (5%) The government implements a minimum wage of W = 370. What is the Consumer Surplus? (5%) Calculate the Producer Surplus under a minimum wage of W = 370. (5%) Find the Deadweight Loss under a...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT