CONNECT F/MICROECONOMICS
21st Edition
ISBN: 2810022151240
Author: McConnell
Publisher: MCG
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Chapter 23, Problem 6DQ
To determine
The factors contributed to increase the income inequality.
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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
%24
A household with income that is two-thirds of the poverty threshold has ratio of income to poverty of
O 0.67.
O 1.50.
O 3.20.
O0.23.
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5. LO 4 Suppose, as in the federal income tax code
for the United States, that the representative con-
sumer faces a wage income tax with a standard
deduction. That is, the representative consumer
pays no tax on wage income for the first x units of
real wage income, and then pays a proportional
taxt on each unit of real wage income greater than
x Therefore, the consumer's budget constraint
given by C wh -D + if wh- D=x., or
C (1-wh-D+ tx+ if_wCh = D2
Now, suppose that the government reduces
tax deduction x Using diagrams, determine the
effects of this tax change on the consumer, and
explain your results in terms of income and sub
stitution effects. Make sure that you consider two
cases. In the first case, the consumer does not pay
any tax before x is reduced, and in the second
case, the consumer pays a positive tax before x
is reduced
Knowledge Booster
Similar questions
- Which would be evidence of an increase in income inequality over time in the United States? O a decrease in the percentage of total personal income received by the highest quintile O an increase in the percentage of total personal income received by the highest quintile O an increase in the percentage of total personal income received by the four lowest quintiles O an increase in the percentage of total personal income received by the lowest quintilearrow_forwardAs income transfer programs accompanying the War on Poverty increased beginning in the latter half of the 1960s, what happened to poverty in the United States? Check all that apply. O The adjusted poverty rate has declined rapidly and is now less than half of the official poverty rate. O The poverty rate declined substantially in the period before the War on Poverty, but not in the period after the start of the War on Poverty. O In 2018, the adjusted poverty rate was only 4 percentage points lower than the official rate in 1970. O The War on Poverty has been largely ineffective in reducing the rate of poverty in the United States.arrow_forwardJust need number 8 answered...#7 is there for reference.arrow_forward
- The government announces programs designed to reduce the share of income going to the top quintile from 60% to 20%. You predict that the most likely result is that: O mean household income will fall, because the highest income earners will earn less and work less. median household income will rise, because some of the 40% of redistributed income will be transferred to the third quintile. after redistribution, each quintile will receive 20% of total wealth. O the lowest quintile will receive the 40% taken from the top quintile and switch places.arrow_forwardWhat is the tax rate percentage and what is it applied to in order to fund and pay for Medicare? O 2.9 percent on wages 5.8 percent on real estate sales 1.5 percent on inheritances for estates valued at more than $15,000. 8 percent on elective surgeries and medical tourism.arrow_forwardWealth, earnings, and disposable income are just three of several ways of looking at inequality. Imagine a household that earns $80,000 per year from labor. In that year, it also receives an income of $3,000 from investments, pays $12,000 in tax, and receives $7,000 in transfers from the state. Which of the following is its market income and its disposable income? O $83,000; $71,000. O $83,000 $78,000. O $80,000; $68,000. O $80,000; $75,000. Jarrow_forward
- 19arrow_forwardIf the tax code exempts the first $20,000 of income from taxation and then taxes 25 percent of all income above that level, then a person who earns percent and a marginal tax rate of $50,000 has an average tax rate of percent. O 15, 25 O 25, 15 O 25, 30 O 30, 25arrow_forwardAssume that in year 1 you pay an average tax rate of 15 percent on a taxable income of $25,000. In year 2, you pay an average tax rate of 20 percent on a taxable income of $50,000. Assuming no change in tax rates, the marginal tax rate on your additional $25,000 of income is Multiple Choice O 35 percent. O 30 percent. 25 percent. O 13 percent.arrow_forward
- A5arrow_forwardKathy works full time during the day as an economist and faces a 90 percent marginal tax rate. If Kathy were to get an offer to work a second job in the evenings doing consulting work for a local business for $10,000 per year, how much of this additional income would she be able to keep as net pay after taxes? O $1,000 O $4,000 O $6,000 O $10,000arrow_forwardPLS HELP ASAP ON BOTHarrow_forward
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