Author Question: Refer to Figure 6-5. The section of the demand curve labeled A represents A) the inelastic ... (Read 140 times)

sdfghj · **on:** Jun 29, 2018

Refer to Figure 6-5. The section of the demand curve labeled A represents

A) the inelastic section of the demand curve.
B) the unit-elastic section of the demand curve.
C) the perfectly elastic section of the demand curve.
D) the elastic section of the demand curve.

Question 2

Explain the factors that determine the incidence of the payroll tax. Illustrate your answer using graphs.

In the United States, who bears most of the payroll tax employers or workers? Why? (Hint: draw two separate supply and demand curves for labor. Show one with a relatively elastic supply for labor and one with a relatively inelastic supply).

mbcrismon · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

D

Answer to Question 2

Tax incidence is the ultimate distribution of a tax's burden. The incidence of the payroll tax is determined by the elasticity of labor supply. The graphs illustrate that the more elastic the supply, the greater the tax burden that is borne by the firm. Studies indicate that most of the payroll tax in the U.S. is probably borne by workers. Workers probably bear most of the burden of the payroll tax because the elasticity of labor supply is close to zero.