The most important taxes in the US economy is tax on labor. The Social Security tax, the Medicare tax, and the federal income tax are labor taxes. For a typical worker, if all forms of labor taxes are added together, the marginal tax rate - the tax on the last dollar of earning - is about 40 percent. b Use a labor supply and demand diagram to show that a labor tax places a wedge between the wage that firms pay and the wage that worker receive, and causes unemployment. On your graph show the deadweight loss caused by tax -Using labor supply and demand diagrams show that the size of DWL changes with the elasticity of labor supply (draw two supply and demand diagrams: one for elastic supply and one for inelastic supply) -- In what situation we should expect labor supply to be elastic? In what situation we expect it to be elastic? Explain.