Reference no: EM131101335
PLEASE ANSWER ALL THE QUESTIONS (WILL GIVE GOOD RATING)
A. Consider the market for labor is segmented into the market for low skilled labor and the market for high skilled labor. If the low skilled labor market is given by the following function: labor demand: w = 35 – 0.005L; and labor supply is 4000. If the high skilled labor market is given by the following functions: labor demand: w = 400 – 2L, and the labor supply function is given by w = 160 + 1.2L. The hourly wage in both is given by w, and L is the number of workers.
1. Show both numerically and with corresponding graphs (for the two markets) the equilibrium wages and number of workers in the low skilled labor market and the high skilled labor market.
2. Suppose the government needing to provide some basic services decided to place a tax on labor income and chooses a progressive tax structure where it taxes the low income earners at a rate of $3 per labor hour, and the high income earners at rate of $112 per labor hour. Compute the total revenues the government will get from this tax scheme and the deadweight loss associated with this.
3. Suppose instead the government decides to use a flat tax of 24% of the equilibrium wage for labor in all markets. Again compute the total revenues to the government and the deadweight loss associated with this.
4. Discuss the efficiency and equity attributes of both policies. In general if the government wanted to focus on minimizing the deadweight loss from taxation, what should be the optimal labor income tax policy providing tax revenues in the same range as in (2) and (3) above? Are there any problems with this policy? Explain.
5. What if the government decides to focus more on reducing income inequality through its tax policy and tries to tax only the high income earners, what are the two revenue generation problems with this policy? Explain.
Explain government options for expansionary fiscal policy
: Explain the government's options for expansionary fiscal policy & what they mean for the budget balance. Assuming that the economy is in a recessionary gap, graphically show the impact of expansionary fiscal policy on real GDP. Should the government ..
|
Three possible investment opportunities for period
: Linda inherited a sum of $50,000 from one or her great parents. She would like to invest in one of the following three possible investment opportunities for a period of 10 years. Choose the best one for her.
|
Inflation is serious problem that should be avoided at costs
: What are the implications of this statement, “Inflation is a serious problem that should be avoided at all costs.” Is knowing this information important in the world of business?
|
Does this involve inflation and economic efficiency
: In the Adirondacks there used to be a number of paper mills, every one of them has closed down. However, a group of entrepreneurs is going to refit one of the old paper mills and reopen it. They are planning on employing 5,000 workers in a town of 10..
|
Low skilled labor market and the high skilled labor market
: Consider the market for labor is segmented into the market for low skilled labor and the market for high skilled labor. If the low skilled labor market is given by the following function: labor demand: w = 35 – 0.005L; and labor supply is 4000. Show ..
|
Monopolist is subjected to rate regulation
: Suppose that a monopoly firm finds that its MR is $64 for the first unit sold each day, $63 for the second unit sold each day, $62 for the third unit sold each day, and so on. What is the firm’s MRP for each of the first five workers? Suppose that th..
|
Policies will affect unemployment in neoclassical model
: Explain how each of the following events or policies will affect unemployment in a neoclassical model: What’s the difference between how a Keynesian economist would sketch an AS curve and a Phillips curve, and how a neoclassical economist would sketc..
|
What are the three basic sources of economic profits
: What are the three basic sources of economic profits?
|
Two firms in market for commercial dry suits
: There are two firms in a market for commercial dry suits. The market demand curve is P = 4,500 – 2.5Q. Firm 1 has a total cost curve of C = 1,000 q with zero fixed costs, while Firm 2 has a total cost curve of C = 1,500 q with zero fixed costs. If th..
|