8. Understanding marginal and average tax ratesConsider the economy of Pomistan, where citizens consume only apples. Assume that apples cost $1 each, and each person can buy at most 5,000 apples. The government has devised the following tax plans:Plan APlan BConsumption up to 1,000 apples is taxed at 10%.Consumption up to 2,000 apples is taxed at 20%.Consumption higher than 1,000 apples is taxed at 40%.Consumption higher than 2,000 apples is taxed at 10%. Derive the marginal and average tax rates under each tax plan at the consumption levels of 500 apples, 1,500 apples, and 2,500 apples, respectively. Fill in the following table with your results. Plan A Plan B Consumption LevelMarginal Tax RateAverage Tax RateMarginal Tax RateAverage Tax Rate500 apples10% 10% 20% 20% 1,500 apples40% 20% 2,500 apples40% 10%

The objective of this question is to calculate the marginal and average tax rates under two…

Answered: 8. Understanding marginal and average…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

8. Understanding marginal and average tax rates

Consider the economy of Pomistan, where citizens consume only apples. Assume that apples cost $1 each, and each person can buy at most 5,000 apples. The government has devised the following tax plans:

Plan A	Plan B
Consumption up to 1,000 apples is taxed at 10%.	Consumption up to 2,000 apples is taxed at 20%.
Consumption higher than 1,000 apples is taxed at 40%.	Consumption higher than 2,000 apples is taxed at 10%.

Derive the marginal and average tax rates under each tax plan at the consumption levels of 500 apples, 1,500 apples, and 2,500 apples, respectively. Fill in the following table with your results.