Chapter 18, Problem 1P

To determine

Identify the role of minimum wage rate and taxes in an economy.

Explanation of Solution

The given minimum wage rate is $7.25 per hour and the working is 40 hours in a week. The tax rate is 10 % of the total pay. The total week in a year is 52. Then, the amount that takes home per year can be calculated by using formula as follows:

$\text{Amount that take home}=\left(\text{Wage rate per hour}\times \text{ 40 hour week}\right)\times \text{52 weeks}$ (1)

Substitute the respective values into Equation (1), the amount that takes home per year can be calculated as follows:

$\begin{array}{c}\text{Amount that take home per year}=\left(\text{\$7}\text{.25}\times \text{ 40 hour week}\right)\times \text{52 weeks}\\ =290.00\times 52\text{Weeks}\\ =\$15,080.00\end{array}$

$15,080.00 is the amount that takes home per year. The amount that takes home per month can be calculated by dividing this amount by 12 (12 months in a year) as follows:

$\begin{array}{c}\text{Amount that take home per month}=\frac{\$15,080.00}{12}\\ =\$1,256.67\end{array}$

The amount that takes home per month is $1256.67.

10% tax rate of the amount that takes home per month can be calculated as follows:

$\begin{array}{c}\text{Amountof tax rate}=\frac{\$1,256.67\times 10}{100}\\ =125.667\end{array}$

After deducting the tax rate, the amount that takes per month is $1131.00.

The reasonable apartment will cost to rent $1256.67. This is the amount that takes home per month. Preparing a hypothetical budget for this family will be based on the costs associated with the basic necessities of the family.

Economics Concept Introduction

Minimum wage: The minimum wage rate is the lowest wage rate that firms are permitted to pay the workers.

Tax: The tax is a compulsory payment imposed by the government on workers, business groups, or added to the cost of goods and services. This is the major revenue source of the government.