Question
In: Economics
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 wage under this tax system? How many hours per week will the individual work? How much does the individual earn before-tax? Calculate and illustrate the direct burden (tax revenue) from the tax. Calculate and illustrate the indirect burden (deadweight loss) from the tax. [4]
- Imagine that there are many different individuals with different labour supply curves, all of whom face the before-tax wage of $40. Do they all face the same marginal tax rate on labour income? What about the average tax rate on labour income? Is the tax regressive, proportional, or progressive? [Hint: Write out a tax function, taxes as a function of income, ie. T(Y).] [4]
- Now suppose that the government changes the tax so that under the new system, the first $600 of labour income/week is tax free, but income above this level is subject to the 25% tax. What is the after-tax wage under this tax system? How many hours per week will the individual work? How much does the individual earn before-tax? Calculate and illustrate the direct burden (tax revenue) from the tax. Calculate and illustrate the indirect burden (deadweight loss) from the tax. [4]
- As in part (c), imagine that there are many different individuals with different labour supply curves, all of whom face the before-tax wage of $40. Under the new system, do all face the same marginal tax rate on labour income? What about the average tax rate on labour income? Is the tax regressive, proportional, or progressive? [Hint: Think about the tax function for incomes above $600] [4]
Solutions
Rahul Sunny answered 1 year agoRelated 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...
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 $10.
a) Find the quantity supplied of labour and the total tax
revenue at the following tax rates: 15%, 30%, 50%, 70%, and
80%.
b) Calculate the net wage elasticity of labour supply at each of...
Consider the following supply and demand equations in the market for labour. Supply: w=L Demand: w=...
Consider the following supply and demand equations in the market
for labour.
Supply: w=L
Demand: w= 500−L.
Use these equations to respond to the following questions.
(a) What is the market equilibrium price and quantity?
(b) Under a free market, what is the Total Surplus?
(c) Suppose that the government enacts a minimum wage of w= 400.
What is theTotal Surplus?
(d) What is the Surplus amount of labour under the minimum
wage?
The market demand for labour is given by w = 28 – 0.05L, where w is...
The market demand for labour is given by w = 28 –
0.05L, where w is the wage rate ($/week) and
L is the number of workers the firm want to employ. The
market supply of labour is given by w = 2 +
0.05L, where w is the wage rate ($/hr) and
L is the number of workers who want to work.
What is the equilibrium wage rate?
If the government introduces the minimum wage rate of
$15.75/hr, what...
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 $12 to all workers who are
willing to work at that wage; hence the demand curve isW=12.(a)
Illustrate the market equilibrium, if you are told that the
equilibrium occurs where L=60. (b) Compute the supplier surplus at
this equilibrium.
Assume that output is given by with price of labour L = w and price of...
Assume that output is given by with price of labour L = w and
price of capital K = r
1.If capital in the short run is fixed at what is the short-run
total cost?
2.Write the values for the derivatives of the Total cost with
respect to w and r. Does Shephard’s lemma hold in this case?
3. The market demand for labour is given by w = 18 – 0.05L, where w...
3. The market demand for labour is given by w = 18 – 0.05L,
where w is the wage rate ($/hr) and L is the number of workers the
firm want to employ. The market supply of labour is given by w = 10
+ 0.15L, where w is the wage rate ($/hr) and L is the number of
workers who want to work. The government introduces the payroll tax
$1 per hr per worker.
a. What is the portion...
1. The market demand for labour is given by w = 20 – 0.05L, where w...
1. The market demand for labour is given by w = 20 – 0.05L,
where w is the wage rate ($/week) and L is the number of workers
the firm want to employ. The market supply of labour is given by w
= 10 + 0.05L, where w is the wage rate ($/week) and L is the number
of workers who want to work.
a. What is the equilibrium wage rate?
b. If the government introduces the minimum wage rate...
1. The market demand for labour is given by w = 18 – 0.05L, where w...
1. The market demand for labour is given by w = 18 – 0.05L,
where w is the wage rate ($/week) and L is the number of workers
the firm want to employ. The market supply of labour is given by w
= 10 + 0.05L, where w is the wage rate ($/hr) and L is the number
of workers who want to work.
a. What is the equilibrium wage rate?
b. If the government introduces the minimum wage rate...
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