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In: Economics

(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 where t is the tax rate.) Suppose that the government currently
imposes a tax rate of 70 percent. What advice would you give it?
(b) At what tax rate are tax revenues maximized in this economy?

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Expert Solution

Rahul Sunny answered 1 year ago
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