5. Calculating tax incidence Suppose that the local government of Santa Fe decides to institute a tax on seltzer consumers. Before the tax, 10 billion packs of seltzer were sold every year at a price of $9 per pack. After the tax, 3 billion packs of seltzer are sold every year; consumers pay $14 per pack (including the tax), and producers receive $6 per pack. The amount of the tax on a pack of seltzer is $8 per pack. Of this amount, the burden that falls on consumers is per pack, and the burden that falls on producers is per pack. True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on producers. True O False6. Who should pay the tax? The following graph gives the labor market for laboratory aides in the Imaginary country of Faldela. The equilibrium hourly wage is $10, and the equilibrium number of laboratory aides is 250. Suppose the federal government of Faldela has decided to institute an hourly payroll tax of $4 on laboratory aides and wants to determine whether the tax should be levied on the workers, the employers, or both (in such a way that half the tax is collected from each party)- Use the graph Input tool to evaluate these three proposals. Entering a number into the Tax Levied on Employers field (initially set at zero dollars per hour) shifts the demand curve down by the amount you enter, and entering a number into the Tax Levied on Workers Held (Initially set at zero dollars per hour) shirts the supply curve up by the amount you enter. To determine the before-tax wage for each tax proposal, adjust the amount in the Wage field until the quantity of labor supplied equals the quantity of labor demanded. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool (?) Market for Laboratory Aides Wage Supply [Dollars per hour) Labor Demanded 310 Labor Supplied 190 (Number of workers) (Number of wonders, Demand Shifter WAGE ( Collars per hour) Supply Shifter Tax Levied on Tax Levied on mand 0 Employers Workers (covers per hour) Dollars per hour) 0 50 100 150 200 250 300 350 400 450 500 LABOR [Number of workers)For each of the proposals, use the previous graph to determine the new number of laboratory aides hired. Then compute the after-tax amount paid by employers (that is, the wage pold to workers plus any taxes collected from the employers) and the after-tax amount earned by laboratory aides (that is, the wage received by workers minus any taxes collected from the workers). After-Tax Wage Paid by After-Tax Wage Received by Tax Proposal Quantity Hired Employers Workers Levied on Levied on (Number of (Dollars per hour) (Dollars per hour) Employers Workers workers) (Dollars per hour) (Dollars per hour) 2 Suppose the government doesn't want to discourage employers from hiring laboratory aides and, therefore, wants to minimize the share of the tax paid by the employers. Of the three tax proposals, which is best for accomplishing this goal? The proposal in which the entire tax is collected from workers The proposal in which the tax is collected from each side evenly The proposal in which the tax is collected from employers () None of the proposals is better than the others7. Effect of a tax on buyers and sellers The following graph shows the weekly market for sweatpants in some hypothetical economy. Suppose the government levies a tax of $11.60 per pair. The tax places a wedge between the price buyers pay and the price sellers receive. Supply 30 Tax Wedge PRICE (Dollars per pair) 20 Demand 10 20 30 40 60 70 80 90 100 QUANTITY (Pairs of sweatpants)Complete the following table by filling in the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive ( Pairs of sweatpants) (Dollars per pair) ( Dollars per pair) Before Tax After Tax Using your answers from the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden (Dollars per pair) Elasticity Buyers Sellers The tax burden falls more heavily on the side of the market that is 7 elastic