Question

In: Economics

the supply function in a job market is given by l = -150 + 2.5 w...

the supply function in a job market is given by l = -150 + 2.5 w and demand function is l = 210 - 1.5w. suppose the government imposes tax. currently tax is 15.3 percent of wages, with workers paying 7.65% and employers paying the other 7.65%. calculate the percentage change in wage and labor due to tax.

Solutions

Expert Solution

Demand Function = I = 210-1.5w

Supply Function = I = -150+2.5w

Equilibrium Wage = 210-1.5w = -150 +2.5w

= 210+150 = 2.5w+1.5w

360 = 4w

w = 360/4 = 90

When the government imposes taxes of 15.3%, the wage increase will be = 15.3/100*90

= 0.15* 90 = 13.5

The total wage after tax increase will be 90+13.5 = 103.5

Out of the total tax of 15.3%, the labourer pays 7.65 % ie half of the tax amout

Employers will pay 13.5/2 = 6.75

Rahul Sunny answered 2 years ago
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