Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134421315
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 19, Problem 1.1P
To determine
Calculate the average tax rate and identify the tax in nature.
Expert Solution & Answer
Explanation of Solution
The average tax rate can be calculated by using formula as follows:
Substitute the respective values in Equation (1) to calculate the average tax rate for the total income $35,000 as shown below:
The average tax rate for the total income $35,000 is 0.
Table-1 shows the values of the average tax rate for different income groups obtained by using Equation (1).
Table-1
| Total income |
Average tax rate |
|
$50,000 |
6.0% |
|
$65,000 |
9.2% |
|
$80,000 |
11.3% |
|
$ 100,000 |
13.0% |
|
$125,000 |
14.4% |
From table-1, it is clear that the tax is progressive in nature. There is no tax for the first $35,000. When the income rises, the tax rate also rises.
Figure-1 represents the graphical representation of the average tax rate of these different income levels.
In figure-1, the horizontal axis shows the income levels and the vertical axis shows the average tax rate. When the income rises the average tax rate also rises. Therefore the tax is progressive in nature.
Economics Concept Introduction
Progressive tax: The progressive tax refers to the higher income people paying a higher tax amount than the lower income people.
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Accompany your response with the corresponding dollar amount. (6 points)
Year 1 Tax Worksheet…
Federal income tax is (a. progressive b. proportionate (flat) c. regressive) , Social Security tax is (a. progressive b. proportionate (flat) c. regressive ) , Medicare tax is (a. progressive b. proportionate (flat) c. regressive) and sales tax is (a. progressive b. proportionate (flat) c. regressive) when comparing an income of $50,000 per year to an income of $150,000 per year.
Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. (Hint: To find the equilibrium quantity
after the tax, adjust the "Quantity" field until the Tax equals the value of the per-unit tax.) Using the data you generate, plot a Laffer curve by using
the green points (triangle symbol) to plot total tax revenue at each of those tax levels.
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
TAX REVENUE (Dollars)
4000
3600
3200
2800
2400
2000
1600
1200
800
400
0
0 10
20
True
30 40 50 60 70
TAX (Dollars per bottle)
False
80
+
90
100
pose the government is currently imposing a $60-per-bottle tax on gin.
Laffer Curve
True or False: The government can raise its tax revenue by increasing the per-unit tax on gin.
?
Chapter 19 Solutions
Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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