Labour Demand: d = 200 10

Labour Supply: s = 10

1. Determine the equilibrium wage and employment level .
2. Suppose the government imposes a payroll tax = 3 on the firm such that the per unit labour cost to the firm rises to + = + 3. Determine the new equilibrium employment level , the wage that the workers take home , and the tax burdens on the workers and the firm.
3. Suppose the labour supply changes to = 100 + 20. Prove this new labour supply curve also passes through the equilibrium and in part (a). Repeat the payroll tax in part (b) using this new labour supply curve to determine the new equilibrium employment level , the wage that the workers take home , and the new tax burdens on the workers and the firm.
4. Plot all the results from part (a) to part (c) in a properly labeled (especially the vertical intercept of every curve) graph.
5. Compare the tax burdens on the workers and the firm between part (b) and part (c). What is the economic intuition for the differences?