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    excess burden or Dead Weight Loss

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    A. An economist estimates that a new tax on labor income has had an effect on the labor supply of affected taxpayers (in other words, affected taxpayers work the same amount of hours after the tax is imposed). He therefore concludes that the excess burden of the new tax is zero. Do you agree? Define "excess burden", and explain why or why not. What information would you need to approximate the excess burden of the tax? Be specific.

    b. Another economist estimates that a new tax on labor income has had no effect on labor incomes of affected taxpayers. He therefore concludes that the excess burden of the new tax is zero. Do you agree? Explain.
    (Note: Labor income equals wage*hours worked.)

    Would like to get another opinion to this question. What does someone else think or feel about it?

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    Solution Preview

    Please refer to the attachment for figures.

    *"excess burden", or Dead Weight Loss, is the cost incurred to society when, by artificial means, the free-market price mechanism is interfered with. In the case of interference neither ...

    Solution Summary

    The expert exemplify excess burden or dead weight loss. An economist estimates that a new tax on labor income has had no effect on labor incomes of affected taxpayers.

    $2.49

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