The figure above shows a labour market with an income tax.
-In the figure above, the tax wedge is equal to ________ per hour, the after-tax real wage rate is equal to ________, and the before-tax real wage rate is equal to ________.

Question

Quizplus · Accepted Answer

The tax wedge is the difference between the before-tax and after-tax wage rates, which is $15 ($35 - $20). The after-tax real wage rate is what the worker takes home, which is $20. The before-tax real wage rate is what the employer pays, which is $35.

The Figure Above Shows a Labour Market with an Income