The demand curve for gardeners is GD = 19 – W, where G = the number of gardeners, and W = the hourly wage. The supply curve is GS = 4 + 2 W.

a. Graph the demand curve and the supply curve. What is the equilibrium wage and equilibrium number of gardeners hired?

b. Suppose the town government imposes a $ 2 per hour tax on all gardeners. Indicate the effect of the tax on the market for gardeners. What is the effect on the equilibrium wage and the equilibrium number of gardeners hired? How much does the gardener receive? How much does the customer pay? How much does the government receive as tax revenue?

Solutions

Expert Solution

GD = 19 – W so W = 19 - GD
GS = 4 + 2 W so W = 0.5GS - 2
W = 14 G = 5

After tax, the supply function shifts to W = 0.5GS - 2 + 2 = 0.5GS
Wage rises to 6.33
Number of gardners hired falls to 12.667
Gardner receives 6.33 - 2 = 4.33
Customer pays 6.33
Government receives 2 x 12.667 =25.334

Rahul Sunny answered 1 year ago

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