Question 2 A government considers a proposal to add a tax on employees' salaries. Assume that the labor market is perfectly competitive (free entry market). You can ignore long- run effects and externality on other markets. a) Suppose that each employee pays a certain percentage of the employee's wages in tax. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay the tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Market wage will (Circle one): Increase Decrease No Change Uncertain Employment level will (Circle one): Increase Decrease No Change Uncertain b) Now suppose that both employers and employees pay a tax equal to the same percentage of employee's wages. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay their tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Decrease No change Uncertain Market wage will (Circle one): Increase Employment level will (Circle one): Increase Decrease No Change Uncertain
Question 2 A government considers a proposal to add a tax on employees' salaries. Assume that the labor market is perfectly competitive (free entry market). You can ignore long- run effects and externality on other markets. a) Suppose that each employee pays a certain percentage of the employee's wages in tax. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay the tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Market wage will (Circle one): Increase Decrease No Change Uncertain Employment level will (Circle one): Increase Decrease No Change Uncertain b) Now suppose that both employers and employees pay a tax equal to the same percentage of employee's wages. Using relevant demand-supply analysis AND graph, explain the effect of the tax on the market wage (the wage that employers pay to employees before employees pay their tax) and total employment level. In particular, would such a tax increase or decrease the market wage and the employment level? No need to provide justifications. Decrease No change Uncertain Market wage will (Circle one): Increase Employment level will (Circle one): Increase Decrease No Change Uncertain
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Question 2
A government considers a proposal to add a tax on employees' salaries. Assume that
the labor market is perfectly competitive (free entry market). You can ignore long-
run effects and externality on other markets.
a) Suppose that each employee pays a certain percentage of the employee's wages in
tax. Using relevant demand-supply analysis AND graph, explain the effect of the tax
on the market wage (the wage that employers pay to employees before employees pay
the tax) and total employment level. In particular, would such a tax increase or
decrease the market wage and the employment level? No need to provide
justifications.
Market wage will (Circle one): Increase
Decrease
No Change Uncertain
Employment level will (Circle one): Increase Decrease No Change Uncertain
b) Now suppose that both employers and employees pay a tax equal to the same
percentage of employee's wages. Using relevant demand-supply analysis AND graph,
explain the effect of the tax on the market wage (the wage that employers pay to
employees before employees pay their tax) and total employment level. In particular,
would such a tax increase or decrease the market wage and the employment level? No
need to provide justifications.
Market wage will (Circle one): Increase
Decrease
No change
Uncertain
Employment level will (Circle one): Increase
No Change Uncertain
Decrease
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