How does a tax on labor income influence the equilibrium quantity ...

[jhjkgdfhk]

How does a tax on labor income influence the equilibrium quantity of employment?
 
  What will be an ideal response?

Question 2

Competitive market equilibrium is a market equilibrium with many buyers and sellers.
 
  Indicate whether the statement is true or false

[wshriver]

Answer to Question 1

A tax on labor income drives a wedge between the after-tax wage rate of workers and the before-tax wage rate paid by firms. The tax on labor income decreases the supply of labor. That is, for each before-tax wage rate, workers provide a lower quantity of labor when faced with a tax that lowers their after-tax wage. The decrease in labor supply raises the before-tax wage rate, even though the after-tax wage rate received by workers falls. The decrease in labor supply also means that the quantity of employment at full employment (i.e., equilibrium employment in the labor market) falls.

Answer to Question 2

TRUE

[jhjkgdfhk]

Gracias!

[cam1229]

Excellent