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The government is deciding whether to offer a universal (single-payer) public health insurance program. The gov- ernment has decided to impose a payroll tax on
The government is deciding whether to offer a universal (single-payer) public health insurance program. The gov- ernment has decided to impose a payroll tax on employers, and use the revenues from that tax to fund the new public health insurance system. You have been asked to investigate the potential labor market effects of this tax. You don't know the equations for the labor supply and labor demand curves, but you do know that the labor supply curve is more inelastic than the labor demand curve. (i) Illustrate the effect of the payroll tax imposed on the firms in a supply-and-demand graph. In addition to labeling the axes and curves, please label: (8pts) Equilibrium employment before and after the tax (label Eo and Ei) The market wage before and after the tax (label wo and wi) After-tax worker surplus (label WS) After-tax producer surplus (label PS) Tax revenue (label TR) Deadweight loss (label DWL) (ii) Which party would bear more of the burden from this tax? Briefly explain in a few sentences. The government is deciding whether to offer a universal (single-payer) public health insurance program. The gov- ernment has decided to impose a payroll tax on employers, and use the revenues from that tax to fund the new public health insurance system. You have been asked to investigate the potential labor market effects of this tax. You don't know the equations for the labor supply and labor demand curves, but you do know that the labor supply curve is more inelastic than the labor demand curve. (i) Illustrate the effect of the payroll tax imposed on the firms in a supply-and-demand graph. In addition to labeling the axes and curves, please label: (8pts) Equilibrium employment before and after the tax (label Eo and Ei) The market wage before and after the tax (label wo and wi) After-tax worker surplus (label WS) After-tax producer surplus (label PS) Tax revenue (label TR) Deadweight loss (label DWL) (ii) Which party would bear more of the burden from this tax? Briefly explain in a few sentences
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