ESSENTIALS OF ECONOMICS
11th Edition
ISBN: 9781260225334
Author: SCHILLER
Publisher: RENT MCG
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Question
Chapter 2, Problem 7P
To determine
(a)
The average income in the United States.
To determine
(b)
Percentage of the average income of the highest fifth income group to be taxed.
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Students have asked these similar questions
Discuss the key tenets of the U.S. personal income tax code.
For example, our tax rates are progressive, which means that the more one earns the higher her tax rate.
Do you think that this is fair?
Demonstrate how the distribution of income
between rich and poor is affected by
government taxes, transfers and spending.
Compare one poor person with an income of
$10,000 per year with a relatively wealthy person
who has an income of $60,000 per year. Imagine
that the person drinks 15 bottles of wine per year
at a price of $10 per bottle while the wealthy
person drinks 50 bottles of wine per year at an
average price of $20 per bottle. If a tax of $1 per
bottle is imposed on wine, who pays more on
taxes? Who pays the greater amount as a
percentage of income? If a tax equal to 10% of the
wine is imposed, who pays more in taxes? Who
pays more as a greater percentage of income?
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Similar questions
- "How can Income Inequality in the United States be Reduced?"arrow_forwardThe table shows the distribution of market income. Suppose that the government redistributes income by taxing the 60 percent of households with the highest market incomes 10 percent, then distributing the tax collected as an equal benefit to the 40 percent with the lowest market income. If the people whose market incomes are taxed cut their work hours and their market incomes fall by 10 percent, what is the distribution of income after taxes and benefits? Complete the table to show the new distribution of income. (Ignore any cost of administrating the redistribution scheme.) >>> Answer to 1 decimal place. Search Households Lowest 20 percent Second 20 percent Third 20 percent Fourth 20 percent Highest 20 percent Market income (millions of dollars) 5 9 20 30 36 Income after tax and benef (percentage of tc income after ta and benefits) Nextarrow_forwardThe table shows the distribution of market income. Suppose the government redistributes income by taxing the 60 percent of households with the highest market incomes 10 percent, then distributing the tax collected as an equal benefit to the 40 percent with the lowest market income. What percentage of total market income is redistributed to the second 20 percent of households? What is the income share of the third 20 percent of households after tax and redistribution? >>> Answer to 1 decimal place. earch The second 20 percent of households receives benefits equal to percent of total market income. The third 20 percent of households earns percent of total income after tax and benefits. I point(s) Households Lowest 20 percent Second 20 percent Third 20 percent Fourth 20 percent Highest 20 percent Market income (percentage of total market income) 5 9 20 30 36 Nextarrow_forward
- Which of the following statements about income inequality is true? a. A low average household income in a society suggests significant income inequality. b. A society with progressive income taxes will likely have a very unequal after-tax distribution of income. c. Low taxes on savings tend to lead to a more equitable distribution of after-tax income. d. Raising taxes on savings and providing subsidies to low-income households will lead to more equal after-tax and transfer incomes. e. Low tax rates on wealth will lead to less unequal income distributions.arrow_forwardDiscuss how a government might use taxation to affect the distribution of incomearrow_forward1. How does the population of a low-income country such as Ethiopia differ from that of a high-income nation such as the United States in terms of poverty? Do you think the people living in high-income nations have a responsibility to address poverty in the rest of the world ? If so, why? If not, why not?arrow_forward
- Consider an economy with the following income distribution: each person in the bottom quartile of the income distribution earns $15,000; each person in the middle two quartiles earns $40,000; and each person in the top quartile of the income distribution earns $100,000.a. What is the Gini coefficient associated with this income distribution?b. Suppose the bottom quartile pays no taxes, the middle two quartiles pay 10 percent of its income in taxes, and the top quartile pays 28 percent of its income in taxes. Two-thirds of all tax money is redistributed equally to all citizens in the form of military defense, government pensions (social security), roads/highways, and so on. The remaining one-third of tax money is distributed entirely to the poorest quartile. What is the Gini coefficient associated with this redistribution plan?Would you consider this tax and redistribution plan to be a particularly aggressive income redistribution policy?arrow_forwardUse quintiles to briefly summarize the degree of income inequality in the United States. How and to what extent does government reduce income inequality?arrow_forwardThe graph illustrates the labor market in a country that does not tax labour income Suppose that the government introduces a Social Security tax on workers of $2 an hour. How many workers are employed? What is the wage rate paid by employers and what is the workers' after-tax wage rate? How many workers are no longer employed? The number of workers employed is 14.00 13.00 12.00- 11.00 10.00- 9.00- 8.00- 7.00 Wage rate (dollars per hour) 10.00 600 700 900 900 1000 1100 500 Quantity (workers) LS LD 1200 ouarrow_forward
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