Assignment: Suppose that the demand for labor by firms is given by L = 1000 - 100W and the supply of labor from workers is given by L = - 400 + 100W, where L represents the number of workers and W is the wage in this labor market.
Question 1: What are the equilibrium levels of W and L in this labor market?
Question 2: Suppose the government imposes an income tx of 25% on workers. The workers aftertax wage, W(w), will then be equal to the wage paid by firms, W(), times (1-t). What will the new equilibrium levesl for W(f), W(w), and L be in this labor market?
Question 3: What is the governments tax revenue and the deadweight loss from the income tax?