Question

1-Explain why sellers and buyers share the burden of the tax regardless of who it is levied on.

2-Explain why raising the minimum wage is not the best way to help unskilled workers?

Answer 1

1. The sellers and the buyers share the burden of the tax regardless on whom it is imposed because the tax places a wedge between the prices that the sellers recieve and the prices that the buyers pay. The wedge between the sellers price and the buyers price is the same regardless of the tax incidence. With the tax, the price of the product increases and the quantity demanded falls as a result the supply of the product also declines.So both the consumer surplus and the producer surplus declines. The only difference between the tax levied on buyers and sellers is that who sends the collected tax money to the government.

2.Raising the minimum wage is not the best way to help unskilled workers because this will lead to a decline in the employment as the employers would find it expensive to hire unskilled workers to meet the objectives of the firm.In the long run, the employers might start looking for alternatives and may turn to automation. They may want to invest in new machinery or modern equipments that would help them to lower the cost and decrease the employement of workers and earn higher profits.