Question

The market demand for labour is given by w = 80 – 0.2L, where w is...

The market demand for labour is given by w = 80 – 0.2L, where w is the wage rate ($/week) and L is the number of workers the firms want to employ. The market supply of labour is given by w = 10 + 0.05L, where w is the wage rate ($/week) and L is the number of workers who want to work.

a. What is the (point) wage rate elasticity of labour demand in a competitive market equilibrium?

b. What is the (point) wage rate elasticity of labour supply in a competitive market equilibrium?

The government introduces the payroll tax $1 per hr per worker. Answer the following 2 questions

c. What is the portion (economic incidence) of the tax that the workers pay (in cents per dollar of the tax)?

d. What is the deadweight loss resulting from this tax?

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