2. (40p01'nts total) Payroll taxesi, labor market and welfare. The graph below shows the equilibrium in labor market prior to imposition of a payroll tax, where P and Q denote producer surplus and worker surplus (economic rent) respectively. 0 15* Employment Suppose the government imposes a payroll tax that employers now have to pay. To simplify the analysis, consider a very simple form of payroll tax. In particular, the rm will pay a tax of $1 for every employee-hour it hires. In other words, if the wage is $10 an hour, the total cost of hiring an hour of labor will be $11 ($10 goes to the worker and $1 goes to the government). A. (I 0 points) Draw a graph like the one ab0ve. On this graph, show i) the effect of this payroll tax on equilibrium employment level. ii) the effect of this payroll tax on wages paid by the rms and received by the workers. B. (10poz'nts) Use your graph to assess the tax burden: who is actually paying the tax? Does your answer depend on the elasticities of labor demand and labor supply? Explain