Refer to the labor market in Figure 33.5.Suppose that the government imposes a payroll tax on employers in this market.How much will the government collect in tax receipts for every worker hired?

Question

Quizplus · Accepted Answer

The payroll tax will increase the cost of hiring a worker by the amount of the tax. In this case, the tax is $1 per hour worked, which means that employers will now have to pay $8 per hour instead of $7 per hour. As a result, the equilibrium wage will increase from $7 to $8 per hour. However, workers will not be willing to supply as much labor at this higher wage, so the quantity of labor supplied will decrease from Q1 to Q2. The quantity of labor demanded by employers will also decrease from Q1 to Q3. The difference between the new wage ( $8 ) and the original wage ($7) is $1 per hour, which is the amount of the payroll tax. So, for every hour of work that is hired, the government will collect $3 in tax receipts ($1 from the employer and $2 from the worker). Therefore, the correct answer is B.

Refer to the Labor Market in Figure 33