In an effort to fund a health-insurance program for the uninsured, Congress may impose a 1 percent payroll tax on employers. Labor, business, and consumer groups are all fighting this new tax, believing that they will be the ones to ultimately bear the burden of the tax.

a) Show the cost curves of a typical accounting firm, assuming it is in long-run equilibrium.

b) Carefully analyze the short-run effects of the tax on firm costs and output, assuming that labor is the only variable factor of production.

c) Now show the short-run impact of the tax on equilibrium price and output in the accounting market. How does this equilibrium price and quantity change in the long run?

d) Can you determine who bears the tax in the short run? In the long run?

Explain your answers.