Suppose that a city law requires taxi drivers to wear tuxedos. The drivers must pay $10 per week for the tuxedos. Taxicab companies pay their drivers $210 per week. After paying for the tuxedos, taxi drivers earn $200 per week.
(i) If the law were revised so that taxicab companies, not the drivers, must pay for the tuxedos, what would happen to the taxi drivers' earnings?
(ii) If the law were repealed, what would happen to the taxi drivers' earnings? Be as specific as possible.
(i) The change in the legal incidence has no effect on the economic incidence. Taxicab companies will pay their drivers $200 per week, and when the cost of the tuxedos is added, their total cost of a driver will still be $210 per week. Taxi drivers will continue to earn $200 per week.
(ii) The $10 per week windfall from the repeal of the law will be shared by taxi drivers and taxicab companies. Taxi drivers will now earn more than $200 per week but less than $210 per week.
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