00:01
This question is asking us if a payroll tax can be used to raise tax revenue without hurting laborers.
00:09
So to answer that, we'll take a look at our labor market.
00:12
I'll draw a quantity axis and a price axis.
00:17
Just to clarify, in labor markets, the price is the wage and the good is labor.
00:24
So we'll draw labor supply, labor demanded by the firm.
00:32
And before any tax comes into the picture, this would be our equilibrium point.
00:38
We can label the equilibrium quantity as q1 and label the equilibrium price as p1.
00:48
Now, when a tax is introduced, assuming all over things are equal, it will be viewed by the producer or the firm as an increase in the price they have to pay.
01:01
They have to pay more to make their goods.
01:06
So by the law of demand, this increase in a price will move them leftward along the demand curve.
01:12
Let's say they reach this point here...