Microeconomics Homework Help. is the post-tax wage of a worker once the tax is

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introduced? •The labor market is perfectly competitive.
•Labor income is taxed at a constant rate of 40%. That is, if a worker’s pre-tax income is I, her post-tax income is 0.6I. (The marginal tax rate for a typical U.S. worker is around 40% when payroll taxes are included. The average tax rate is lower, but it is the marginal rate that affects people’s incentives to work.)
•The demand for labor is perfectly elastic. (This is surely false if we are talking about the short run or about a specific type of labor. However, it is a reasonable approximation for the long run when we are talking about labor as a whole. In effect, we are assuming that a 50% increase in the U.S. population would not have a significant impact on long run living standards.)
•The elasticity of labor supply is 0.5. (This is a middle-of-the-road estimate.) You can approximate the labor supply curve by a straight line in all parts.

1) Call the equilibrium wage rate without taxation w* and the corresponding equilibrium number of hours worked L*. What is the post-tax wage of a worker once the tax is introduced?

2) Using the midpoint formula and the elasticity of labor supply given above, find the number of hours worked with the tax as a fraction of L*.