Payroll Tax for a Health Program. To finance a universal health-care program, the government decides to place a 10 percent payroll tax on all labor hired. (Related to Application 2 on page 174.) a....

Payroll Tax for a Health Program. To finance a universal health-care program, the government decides to place a 10 percent payroll tax on all labor hired. (Related to Application 2 on page 174.)

a. Draw a graph to show how this shifts the demand for labor.

b. If the labor-supply curve is vertical, what are the effects on real wages, output, and employment? Explain why economists say labor bears the full burden of the tax in this case.

c. If the labor-supply curve were horizontal, what would be the effects on wages, output, and employment?