EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 18, Problem 1P
To determine
Average tax rate and type of tax system.
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Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, all
citizens must pay 10 percent in taxes on their first $10,000 in earnings and then 50 percent in taxes on anything else they might earn.
Given that George earned $20,000 last year, his marginal tax rate on the last dollar he earns will be
rate for his entire income will be
and his average tax
O 10 percent; 50 percent
O 50 percent; less than 50 percent
O 10 percent; less than 50 percent
O 50 percent; 50 percent
1. Suppose the marginal or bracket tax rate for income from $1 to $15,000 is 12%, the
marginal tax rate for income between $15,001 and $30,000 is 20%, and the marginal tax
rate for income between $30,001 and $50,000 is 25%. How much in taxes would
someone with a $40,000 income pay?
Is this tax system progressive, regressive, or proportional? Why?
Suppose that the for every 10% increase in the price of gasoline, consumers
will decrease the quantity demanded by 1%, and suppliers will increase their
supply of gasoline by 9%. Next, suppose that there is a $0.50 per gallon tax on
gasoline, and after the tax quantity exchanged in the market is 15 billion
gallons of gasoline. Given this information, what is the total government
revenue from the tax? What is the consumer and producer tax incidence (how
much of the tax revenue would have come from consumers, and how much
from suppliers)?
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Chapter 18 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
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Similar questions
- Suppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,001 and $20,000 and a 30 percent tax on income between $20,001 and $30,000. Any income above $30,000 is taxed at 40 percent. If your income is $50,000, how much will you pay in taxesarrow_forward4. Suppose that there are two households in the economy, A and B, that they face the same wage rate w, and that the government initially uses a proportional income tax according to which each household must pay a fraction t of its labor income as income tax. Assume that given this tax scheme household A chooses to work full time while household B chooses to work part time. Now suppose that the government is interesting in studying the impact of changing the tax system to a progressive tax system where the household work- ing full time would pay a tax rate th >t while the household working part time would pay a rate ti < t. (a) Draw a graph of the impact of this change on the budget constraint that households face with the two different tax systems. (b) What would such a change in the tax system imply for the optimal choice of the two households?arrow_forwardWhat is meant by a progressive tax? A regressive tax? A proportional tax? Comment on the progressivity or regressivity of each of the following taxes, indicating in each case where you think the tax incidence lies: (a) the Federal personal income tax; (b) a 4 percent state general sales tax; (c ) a Federal excise tax on automobile tires; (d) a municipal property tax on real estate; (e) the Federal corporate income tax; (f ) the portion of the payroll tax levied on employers.arrow_forward
- Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, each citizen must pay 10 percent in taxes on their first $10,000 in earnings and then 50 percent in taxes on anything else they might earn. So given that George earned $20,000 last year, his marginal tax rate on the last dollar he earns will be __________ and his average tax rate for his entire income will be _________________. a. 50 percent; 50 percent. b. 50 percent; less than 50 percent. c. 10 percent; 50 percent. d. 10 percent; less than 50 percent.arrow_forwardEconomics Below is a tax table. Assume I earn $150 a year. My tax bracket is my marginal tax rate is I pay in taxes. my average tax rate is ; and O to $100 is 10% $101 to $200 is 15% $201 to $300 is 20% O 10%; 15%; 13.5%; $17.50 O 15%; 15%; 11.7%; $17.50 O none of these O 15%; 15%; 12.5%; $13.50arrow_forwardRefer to the tax table below. If your taxable income is $8,000, your average and marginal tax rates are Taxable Income Total Tax $ 2,000 $ 200 4,000 600 6,000 1,200 8,000 2,000 10,500 3,000 25% average rate and 25% marginal rate on additional income. 25% average rate and 40% marginal rate on additional income. 20% average rate and 30% marginal rate on additional income. 25% average rate with a marginal rate that can not be determined.arrow_forward
- Paying a tax of $15 on an income of $200, a tax of $10 on an income of $300, and a tax of $8 on an income of $400 is an example of a: O a) progressive tax. O b) b) regressive tax. O c) proportional tax. O d) constant-rate tax.arrow_forwardIf Heather's tax liability increases from $10,000 to $16,000 when her income increases from $30,000 to $40,000, her marginal tax rate is 33 percent. 35 percent. 50 percent. O 60 percent.arrow_forwardY= C+ lo + Go Yd = Y -T C = Co + b Yd T= To + t Y Co=100 lo=90 Go=330 To=240 b=0,75 t=0,2 a. What is the equilibrium level of income ? b. What is the effect on of a $50 increase in government spending? c. What is the effect on of a $50 increase in autonomous taxation? d. If the full-employment level of income (Yfe) is 1000 and the government wishes to achieve it, by how much should it change (i) autonomous taxation, (ii) government spending?arrow_forward
- Consider the following hypothetical income tax brackets for a married couple. Assume for simplicity there are no exemptions or deductions. Income $0-S20,000 Tax Rate 5% 30 $20,000-$50,000 $50,000-$100,000 Over $100,000 35 60 Suppose the couple's income is $60,000. What is the couple's marginal tax rate? The couple's marginal tax rate is O percent. (Enter your response as an integer.) What is their average tax rate? The couple's average tax rate is percent. (Enter your response as a real number rounded to one decimal place.)arrow_forward4.7) Consider a national income tax that is structured as follows: Income Marginal tax rate $0-$10,000 0% $10,001-- $60,000 5% $60,001and above 0% For each of the following workers determine his or her marginal and average tax rate d. Would you describe the tax system as proportional, regressive, or progressive? Explainarrow_forwardThe nation of Upstandia uses kroner for money and its tax code is such that a person making 100,000 kroner per year pays 40,000 kroner per year in income taxes; a person making 200,000 kroner per year pays 70,000 kroner per year in income taxes; and a person making 300,000 kroner per year pays 90,000 kroner per year in income taxes. Upstandia’s income tax system is: a. Progressive. b. Regressive. c. Proportional.arrow_forward
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