5. Understanding marginal and average tax rates Consider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devised the following tax plans: Plan A Plan B • Consumption up to 1,000 coconuts is taxed at 5%. • Consumption up to 2,000 coconuts is taxed at 45%. • Consumption higher than 1,000 coconuts is taxed at 50%. • Consumption higher than 2,000 coconuts is taxed at 15%. 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 levels of 500 coconuts, 1,800 coconuts, and 3,000 coconuts, respectively. Consumption Level Plan A Plan B (Quantity of coconuts) Marginal Tax Rate Average Tax Rate Marginal Tax Rate Average Tax Rate (Percent) (Percent) (Percent) (Percent) 500 5 45 1,800 50 45 3,000 50 15 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

5. Understanding marginal and average tax rates Consider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devised the following tax plans: Plan A Plan B • Consumption up to 1,000 coconuts is taxed at 5%. • Consumption up to 2,000 coconuts is taxed at 45%. • Consumption higher than 1,000 coconuts is taxed at 50%. • Consumption higher than 2,000 coconuts is taxed at 15%. 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 levels of 500 coconuts, 1,800 coconuts, and 3,000 coconuts, respectively. Consumption Level Plan A Plan B (Quantity of coconuts) Marginal Tax Rate Average Tax Rate Marginal Tax Rate Average Tax Rate (Percent) (Percent) (Percent) (Percent) 500 5 45 1,800 50 45 3,000 50 15 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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 25 The burden of a tax on a good is said to fall completely on the producers if the: a. wages received by workers who produce the good increase by the amount of the tax. b. price paid by consumers for the good increases by the amount of the tax. c. price paid by consumers does not change. d. price paid by consumers for the good declines by the amount of the tax.
5. Now assume that a recession ( triggered by a reduction of Aggregate Demand ) causes each of the five incomes to fall by 25 % . In other words , income is 75 % of what they used to be . Given the lower income , a ) what would be the total tax revenue paid by each of the five citizens ? b ) what is the total tax revenue for the small nation ?
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5. Study Questions and Problems #5 True or False: The marginal tax rate is calculated using additional income, while the average tax rate is calculated using total income. True O False
c. A progressive tax d. A regressive tax QUESTION 3 Corporate profits are a. taxed to pay for Medicare. b. exempt from taxes. c. included in payroll taxes. d. taxed twice, once as profit and once as dividends. QUESTION 4 A value-added tax or VAT is a tax on a. retail purchases only. b. pollution. c. all stages of production of a good. d. wholesale purchases only. QUESTION 5 Table 12-17 INCOME $50,000 100,000 200,000 AMOUNT OF TAX $12,500 (25%) $25,000 (25%) $50,000 (25%) TAX A
4. Computing and interpreting average tax rates In a hypothetical economy, Clancy earns $11,000, Eileen earns $22,000, and Hubert earns $33,000 in annual income. The following table shows the annual taxable income and tax liability for these three single individuals. For example, Clancy, who earns $11,000, owes $2,860 in taxes. Use the tax liability figures provided to complete the following table by computing the average tax rate for Clancy, Eileen, and Hubert with an annual income of $11,000, $22,000, and $33,000, respectively. Taxable Income Tax Liability Average Tax Rate Taxable Income (Dollars) (Dollars) (Percent) Clancy 11,000 2,860 Eileen 22,000 3,520 Hubert 33,000 3,630 The income tax system for this country is
5. Explain the difference between an excise, corporate, payroll, & income tax rates. (a) Suppose that Leia lives on Alderaan. On the planet of Alderaan, income is taxed in a progressive manner. Thus, the first $10,000 of income is taxed at a rate of 5%. Any income earned above $10,000 is taxed at a rate of 20%. Suppose that Leia earns $55,000 in 2019. What is Leia's average tax rate? What is Leia's marginal tax rate?
4. Study Questions and Problems #4 Federal income tax is an example of a tax that follows the principle. According to this principle, an individual with a higher afford to pay more in taxes. Therefore, regardless of who reaps the benefits from the taxes, individuals with higher incomes proportion of their income in taxes. income should contribute a
5. Understanding marginal and average tax rates Consider the economy of Citronia, where citizens consume only oranges. Assume that oranges are priced at $1 each. The government has devised the following tax plans: Plan A Plan B • Consumption up to 1,000 oranges is taxed at 5%. • Consumption up to 2,000 oranges is taxed at 40%. • Consumption higher than 1,000 oranges is taxed at 40%. • Consumption higher than 2,000 oranges 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 levels of 600 oranges, 1,400 oranges, and 2,500 oranges, respectively. Consumption Level Plan A Plan B (Quantity of oranges) 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.…
7. Study Questions and Problems #7 Suppose Sean has a total taxable income of $30,000, and he must pay $3,000 in taxes for clothing purchased this year. Yvette has a total taxable income of $65,000. The average tax rate for Sean is %. Based on Yvette's taxable income and the average tax rate you found for Sean in the prior question, calculate the minimum amount of tax Yvette must pay to achieve each tax structure listed in the following table. Type of Tax Structure Regressive Progressive Proportional Tax Needed to Achieve Tax Structure (Dollars)