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Consider the economy of Pomistan, where citizens consume only apples. Assume that apples are priced at $1 each. The government has devised the following tax plan

Consider the economy of Pomistan, where citizens consume only apples. Assume that apples are priced at $1 each. The government has devised the following tax plan

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter12: The Design Of The Tax System
Section: Chapter Questions
Problem 4PA
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Consider the economy of Pomistan, where citizens consume only apples. Assume that apples are priced at $1 each. The government has devised the following tax plans:

3. Understanding marginal and average tax rates Consider the economy of Pomistan, where citizens consume only apples. Assume that apples are priced at $1 each. The government has devised the following tax plans: Plan A Plan B • Consumption up to 1,000 apples is taxed at 5%. • Consumption up to 2,000 apples is taxed at 45%. • Consumption higher than 1,000 apples is taxed at 40%. • Consumption higher than 2,000 apples is taxed at 10%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption level of 600 apples, 1,400 apples, and 2,500 apples, respectively. Consumption Level Plan A Plan B (Quantity of apples) Marginal Tax Rate Average Tax Rate Marginal Tax Rate Average Tax Rate (Percent) (Percent) (Percent) (Percent) 600 1,400 2,500 Complete the following table by indicating whether each plan is a progressive tax system, a proportional tax system, or a regressive tax system. Progressive Proportional Regressive Plan A Plan B
Transcribed Image Text:3. Understanding marginal and average tax rates Consider the economy of Pomistan, where citizens consume only apples. Assume that apples are priced at $1 each. The government has devised the following tax plans: Plan A Plan B • Consumption up to 1,000 apples is taxed at 5%. • Consumption up to 2,000 apples is taxed at 45%. • Consumption higher than 1,000 apples is taxed at 40%. • Consumption higher than 2,000 apples is taxed at 10%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption level of 600 apples, 1,400 apples, and 2,500 apples, respectively. Consumption Level Plan A Plan B (Quantity of apples) Marginal Tax Rate Average Tax Rate Marginal Tax Rate Average Tax Rate (Percent) (Percent) (Percent) (Percent) 600 1,400 2,500 Complete the following table by indicating whether each plan is a progressive tax system, a proportional tax system, or a regressive tax system. Progressive Proportional Regressive Plan A Plan B
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