Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
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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Students have asked these similar questions
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.
?
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.
In a hypothetical economy, Clancy earns $37,000, Eileen earns $74,000, and Hubert earns $111,000 in annual income. The following table shows the
annual taxable income and tax liability for these three single individuals. For example, Clancy, who earns $37,000, owes $9,250 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 $37,000, $74,000, and $111,000, respectively.
Taxable Income Tax Liability
Average Tax Rate
Taxable Income
(Dollars)
(Dollars)
(Percent)
Clancy
37,000
9,250
Eileen
74,000
11,100
Hubert
111,000
11,100
The income tax system for this country is
Chapter 19 Solutions
Principles of Economics (12th Edition)
Knowledge Booster
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