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Principles of Microeconomics (Mind...

8th Edition
N. Gregory Mankiw
ISBN: 9781305971493

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BuyFindarrow_forward

Principles of Microeconomics (Mind...

8th Edition
N. Gregory Mankiw
ISBN: 9781305971493
Textbook Problem

If the tax code exempts the first $20,000 of income from taxation and then taxes 25 percent of all income above that level, then a person who earns $50,000 has an average tax rate of _______ percent and a marginal tax rate of _______ percent.

a. 15, 25

b. 25. 15

c. 25, 30

d. 30. 25

To determine

The average tax rate and marginal tax rate.

Explanation

The first $20,000 of the income is exempted from the taxation and then 25% tax is levied on all the income above that level. The income of a person is $50,000.

Option (a):

Calculation of average tax rate:

Average tax rate =(Total incomeTax exemption)×Tax rateTotal income=(

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