Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN: 9781305156050
Author: N. Gregory Mankiw
Publisher: Cengage Learning
Question
Book Icon
Chapter 12, Problem 4PA
To determine

State income tax, federal payroll tax, federal income tax, average tax rate, marginal tax rate.

Expert Solution & Answer
Check Mark

Explanation of Solution

State income tax amount can be calculated as follows:

State income tax=Income×Tax rateState=30,000×0.04=1,200

State income tax is $1,200.

Federal payroll tax can be calculated as follows:

Federal payroll tax=Income×Tax rateFederal payroll=30,000×0.153=4,590

Federal payroll tax is $4,590.

Federal income tax can be calculated as follows:

Federal income tax=(9,075×Tax rateIncome range 0 to 9,075)+((Income9,0785)×Tax rateIncome range 9,075 above)=(9,075×0.1)+((30,0009,075)×0.15)=907.5+3,138.75=4,046.25

The Federal income tax is $4,046.25.

Average tax rate can be calculated as follows:

Average tax rate=State income tax + Federal payroll tax + Federal income taxTotal income =1,200+4,590+4,046.2530,000=9,836.2530,000=0.3278

The average tax rate is 32.78%.

Marginal tax rate is calculated as follows:

Marginal tax rate = Total tax rate for the income above $9,075=0.15+0.153+0.04=0.343=34.3%

The marginal tax rate is 34.3%.

New state income tax amount can be calculated as follows:

State income tax=Income×Tax rateState=60,000×0.04=2,400

The State income tax is $2,400.

Federal payroll tax can be calculated as follows:

Federal payroll tax=Income×Tax rateFederal payroll=60,000×0.153=9,180

The Federal payroll tax is $9,180.

Federal income tax can be calculated as follows:

Federal income tax=((9,075×Tax rateIncome range 0 to 9,075)+((36,9009,075)×Tax rateIncome range 9,075 to 36,900)+((Income36,900)×Tax rateIncome range above 36,900))=(9,075×0.1)+((36,9009,075)×0.15)+((60,00036,900)×0.15)=907.5+4,173.75+5,775=10,856.25

The federal income tax is $410,856.25.

New average tax rate can be calculated as follows:

Average tax rate = Total taxesTotal income=State income tax + Federal payroll tax + Federal income taxTotal income =2400+9180+10856.2530000=22436.2530000=0.374=37.4%

The average tax rate is 37.4%.

New marginal tax rate can be calculated as follows:

Marginal tax rate = Total tax rate for the income above $9,075=0.15+0.153+0.04+0.25=0.443=44.3%

The marginal tax rate is 44.3%.

Economics Concept Introduction

Concept introduction:

Marginal tax rate: Marginal tax rate is the rate by which the taxes increase from an additional dollar of income.

Average tax rate: Average tax rate is defined as the total amount of taxes paid divided by total income.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
6. Rent seeking The following graph shows the demand, marginal revenue, and marginal cost curves for a single-price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist. 18 200 20 16 16 14 PRICE (Dollars per dose) 12 10 10 8 4 2 MC = ATC MR Demand 0 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Millions of doses per year) Monopoly Outcome Monopoly Profits Suppose that should the patent on this particular drug expire, the market would become perfectly competitive, with new firms immediately entering the market with essentially identical products. Further suppose that in this case the original firm will hire lobbyists and make donations to several key politicians to extend its…
Consider a call option on a stock that does not pay dividends. The stock price is $100 per share, and the risk-free interest rate is 10%. The call strike is $100 (at the money). The stock moves randomly with u=2 and d=0.5. 1. Write the system of equations to replicate the option using A shares and B bonds. 2. Solve the system of equations and determine the number of shares and the number of bonds needed to replicate the option. Show your answer with 4 decimal places (x.xxxx); do not round intermediate calculations. This is easy to do in Excel. A = B = 3. Use A shares and B bonds from the prior question to calculate the premium on the option. Again, do not round intermediate calculations and show your answer with 4 decimal places. Call premium =
Answer these questions using replication or the risk neutral probability. Both methods will produce the same answer. Show your work to receive credit. 6. What is the premium of a call with a higher strike. Show your work to receive credit; do not round intermediate calculations. S0 = $100, u=2, d=0.5, r=10%, strike=$150
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Macroeconomics
Economics
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Text book image
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Text book image
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Text book image
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning