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Suppose the supply of labor is W - t = 10H, where W is the gross wage, t is the tax (in dollars), and H is labor hours. The demand for labor is W = 120 - 2H.
-If the tax doubles to $24,the distortion

Question

Quizplus · Accepted Answer

The distortion is the difference between the equilibrium quantity of labor without tax and with tax. When the tax doubles, the distortion increases more than proportionally due to the nonlinear nature of the supply and demand curves, leading to a quadrupling effect.

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