If the Labour Market Is Perfectly Competitive, Labour Demand Function

question 14

Multiple Choice

If the labour market is perfectly competitive, labour demand function is given by ND = a + bW and labour supply function is given by NS = c + dW; W is the wage rate. After imposing a payroll tax T, market equilibrium wage rate will be:

• A) higher than before the tax, and the firm pays b/(b - d) share of the tax.
• B) lower than before the tax, and workers pay b/(b - d) share of the tax.
• C) higher than before the tax, and workers pay b/(b - d) share of the tax.
• D) lower than before the tax, and the firm pays b/(b - d) share of the tax.
• E) equal to before the tax.

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Definitions:

Interest

The charge for borrowing money or the return on invested capital, usually expressed as an annual percentage rate.

Interest Rate

The fraction of a borrowed sum that incurs interest charges for the borrower, often expressed in terms of a yearly percentage.

Investment

The process of assigning financial resources with the goal of making a profit or gaining income.

Interest

The amount paid for the use of borrowed money, typically expressed as a percentage.