Micro-economy Homework Help?

Question

1.if a tax becomes law, what are the underlying factors that determine the burden of any tax?

2.Congress will probably pass legislation to increase the minimum wage in the next four years. using economic theory please explain why this lay will probably increase or decrease unemployment.

Thank You for Answering those Question.

Answer 1

What are the effects of taxes?  From a business perspective it influences prices charged for products and/or services, production levels, quantities supplied/quantitites demanded, wages, and consumer behavior.

Increasing the minimum wage sounds good on the surface, but beware what the unintended consequences of such legislation are.  It is the unseen consequences many economists and most politicians don't see.

A minimum wage law means compulsory unemployment, period. The law says: it is illegal for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.

No employer can overlook the mandated fringe benefits which he is forced to pay above the minimum wage. There are employer Social Security taxes, unemployment and workers' compensation taxes, and paid holidays.

All demand curves are falling, and the demand for hiring labor is no exception. Hence, laws that prohibit employment at any wage that is relevant to the market must result in outlawing employment and hence causing unemployment.

Raising minimum wages forces employers to dismiss low productivity workers. This policy has the largest affect on those with the least education, job experience, and maturity. Consequently, we should expect minimum wage laws to affect teenagers and those with less education.

If government attempts to raise the minimum wage higher than the equilibrium wage, the demand for workers will be reduced and the supply increased. There will be an excess supply of labor. Of course, those who are lucky enough to get a job will be better off at the higher wage than at the market equilibrium wage; but there are others, who might have been employed at the lower market equilibrium wage, who cannot find employment and are worse off.

Answer 2

Who has the ability to pay, without causing them and inabilty to purchase.

Business do what is in their best interst to maximize profits.

They will pass along the added cost to the consumer or lay off workers.

The choice depends on the cost of labor/ number of units produced curve and the supply/demand curve.

This is what they teach you in school, however, the U.S. has sifted to a supply-sided economy meaning if we make it or make avalable they will buy it, They just have to decide at which cost and number of unit will produce the optimum profit.

This is what happened in the American auto industry.