7. Effect of a tax on buyers and sellers The following graph shows the weekly market for craft beer in some hypothetical economy. Suppose the government levies a tax of $11.60 per case. The tax places a wedge between the price buyers pay and the price sellers receive. 50 40 Supply 35 30 Tax Wedge 25 PRICE (Dollars per case) 20 15 10 Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Cases of craft beer)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 (Cases of craft beer) (Dollars per case) (Dollars per case) 1 ] 1 ] 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 case) Elasticity Buyers :l b i Sellers :I v The tax burden falls more heavily on the side of the market that is W elastic. 6. Who should pay the tax? The following graph gives the labor market for laboratory aides in the imaginary country of Episteme. The equilibrium hourly wage is 10, and the equilibrium number of laboratory aides is 200. Suppose the federal government of Episteme has decided to institute an hourly payroll tax of $2 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 field (initially set at zero dollars per hour) shifts the supply curve up by the amount you enfer. 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 valug in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool @ Market for Laboratory Aides 20 / 18 0 Wage . (Dollars per hour) \\:I = Labor Demanded 320 Labor Supplied 30 = 14 (Number of workers) (Number of workers) [l = T 1z w0 Demand Shifter Supply Shifter 5 o s o Tax Levied on Tax Levied on g 5 Employers \\jl Workers E % (Doliars per hour) (Dollars per hour) 0 40 20 120 160 200 240 280 320 360 400 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 paid 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 0 ] ] ] o 2 ] ] ] 1 1 ] ] ] Suppose the government is concerned that laboratory aides already make too little money and, therefore, wants to minimize the share of the tax paid by employees. 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 others