What is the market equilibrium wage and employment?
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Suppose that labor supply is given by E=300w and labor demand is given by E=10,000-200w.
A. What is the market equilibrium wage and employment?
B. A $10 per unit of labor tax is imposed. Use the tax wedge formula to solve for the wage employers pay, the wage workers receive, and the level of employment.
C. At the free-market equilibrium solved for in part a, what is the elasticity of supply and the elasticity of demand?
D. Using the elasticities found in part c, calculate the fraction of the tax paid by employers and the fraction paid by workers.
Compare and contrast your answers in parts b and d.
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