Question

An new labor tax is being proposed by the government. Economists disagree about the desirability of such an increase. Economist Govcare argues that such an increase is a good idea because it will help the government to maintain vital programs such as Medicare and Medicaid and the tax will generate only a small deadweight loss. Economists Dolittle argues that the new tax may help with Medicare and Medicaid but that the deadweight loss to society will be very large. The disagreement between Ms. Govcare and Mr. Dolittle arises most likely because

Ms. Govcare and Mr. Dolittle have different views about the the size of the labor tax.

Ms. Govcare thinks the elasticity of labor supply is high and Mr. Dolittle thinks the elasticity of labor supply is low.

Ms. Govcare thinks the elasticity of labor supply is low and Mr. Dolittle thinks the elasticity of labor supply is high.

Ms. Gocare thinks the elasticity of labor demand is high and Mr. Dolittle thinks the elasticity of labor demand is low.

Economists know that pollution of air generates a negative externality. Therefore,

they argue that efficiency and social welfare will be enhanced when some, but not all air pollution is eliminated.

they agree with many environentalists that social welfare will be at its highest when all air pollution is eliminated.

they argue that governments hould incentivize private firms to consider only private costs.

they argue that the free market result always maximizes efficiency and social welfare.

Answer 1

Ms. Govcare thinks the elasticity of labor supply is low and Mr. Dolittle thinks the elasticity of labor supply is high.
(According to Ms Govcare, deadweight loss will be low which occurs when elasticity is low and according to Mr Dolittle, deadweight loss will be high which occurs when elasticity is high.)

they agree with many environmentalists that social welfare will be at its highest when all air pollution is eliminated.
(As there are negative externalities associated with air pollution so there is deadweight loss in the society due to production of market equilibrium and total surplus or social surplus will be maximized when air pollution is eliminated.)