Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 20, Problem 2RQ
To determine
The marginal and average tax rate.
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Suppose that the for every 10% increase in the price of gasoline, consumers
will decrease the quantity demanded by 1%, and suppliers will increase their
supply of gasoline by 9%. Next, suppose that there is a $0.50 per gallon tax on
gasoline, and after the tax quantity exchanged in the market is 15 billion
gallons of gasoline. Given this information, what is the total government
revenue from the tax? What is the consumer and producer tax incidence (how
much of the tax revenue would have come from consumers, and how much
from suppliers)?
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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
Suppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,001 and $20,000 and a 30 percent tax on income between $20,001 and $30,000. Any income above $30,000 is taxed at 40 percent. If your income is $50,000, how much will you pay in taxes
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- Suppose that the U.S. government decides to charge wine producers a tax. Before the tax, 20 million bottles of wine were sold every month at a price of $5 per bottle. After the tax, 13 million bottles of wine are sold every month; consumers pay $6 per bottle, and producers receive $3 per bottle (after paying the tax). The amount of the tax on a bottle of wine is ____ per bottle. Of this amount, the burden that falls on consumers is ____ per bottle, and the burden that falls on producers is _____ per bottle. (Answer all) True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on consumers.arrow_forwardSuppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,001 and $20,000 and a 30 percent tax on income between $20,001 and $30,000. Any income above $30,000 is taxed at 40 percent. If your income is $50,000, how much will you pay in taxes? Determine your marginal and average tax rates. Is this a progressive tax? Explain.arrow_forwardSuppose a local government imposes a tax on sales of firewood. Before the tax, 20,000 bundles were sold at an average price of $6 per bundle. With the tax in effect, 16,000 bundles are sold, buyers pay $6.40 per pack, and sellers receive $5.50 per pack. In this scenario, the tax is $____ per pack, the tax incidence that falls on buyers is $______ per pack, and the tax incidence that falls on sellers is $______ per pack.arrow_forward
- Suppose you are a typical person in the U.S. economy. You pay 4 percent of yourincome in a state income tax and 15.3 percent of your labor earnings in federal payrolltaxes (employer and employee shares combined). You also pay federal income taxes asin Table 2. How much tax of each type do you pay if you earn $30,000 a year? Taking alltaxes into account, what are your average and marginal tax rates? What happens toyour tax bill and to your average and marginal tax rates if your income rises to$60,000?arrow_forwardSuppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax on earnings between $10,000 and $20,000 and a 30 percent tax on income between $20,000 and $30,000. Any income above $30,000 is taxed at 40 percent. If your income is $50,000, how much will you pay in taxes? Determine your marginal and average tax rates. Is this a progressive tax?arrow_forwardSuppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 15 million bottles of wine were sold every month at a price of $7 per bottle. After the tax, 9 million bottles of wine are sold every month; consumers pay $10 per bottle (including the tax), and producers receive $4 per bottle. The amount of the tax on a bottle of wine is $_______ per bottle. Of this amount, the burden that falls on consumers is $________per bottle, and the burden that falls on producers is $_______per bottle.arrow_forward
- Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 30 billion cases of cola were sold every year at a price of $4 per case. After the tax, 23 billion cases of cola are sold every year; consumers pay $5 per case, and producers receive $2 per case (after paying the tax). The amount of the tax on a case of cola is $_________ per case. Of this amount, the burden that falls on consumers is $_________ per case, and the burden that falls on producers is $__________ per case. True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on consumers.arrow_forwardSuppose that the U.S. government decides to charge beer consumers a tax. Before the tax, 20 million cases of beer were sold every month at a price of $4 per case. After the tax, 14 million cases of beer are sold every month; consumers pay $5 per case (including the tax), and producers receive $1 per case. The amount of the tax on a case of beer is_______per case. Of this amount, the burden that falls on consumers is_______per case, and the burden that falls on producers is_____per case.arrow_forwardSuppose in Fiscal illegal there is a 0 percent tax on the first 10,000 of income, but there is a 20% tax on earnings between $10,000 and $20,000 and a 30% tax on income $20,000 and $30,000. Any income above $30,000 is taxed at 40%. If your income is $70,000, how much will you pay in taxes? Determine your average tax rate?arrow_forward
- Question 5: Combined state and federal taxes on gasoline average around 50 cents per gallon, and these taxes are statutorily levied on gasoline sellers. Because the demand for gasoline is relatively inelastic compared to the supply of gasoline: buyers likely do not bear much of the actual burden because it is statutorily levied on sellers who must submit the tax payments. sellers likely bear most of the actual burden of the tax through lower gasoline prices. O the net price received by sellers after they pay taxes likely falls by almost the full amount of the tax. O buyers likely bear most of the actual burden of the tax through higher gasoline prices.arrow_forwardSuppose that a nation decides to introduce a new income tax system with the tax brackets shown in the table. Income range $0-$20,000 $20,001-S39,000 $39,001-$70,000 $70,001+ Tax rate 0% 31% AD% 50% Use the table to calculate the average tax rate and marginal tax rate for each of the families. Where applicable, round your answer to the nearest whole number Byrne family Income = $25,000 Average tax rate % Marginal tax rate Smith family Income -$48,000 Average tax rate % Marginal tax rate Washington family Income = $62,000 Average tax rate % Marginal tax rate: Lee family Income = $123,000 Average tax rate % Marginal tax rate:arrow_forwardWhat is the benefit of having state and local taxes on income instead of collecting all such taxes at the federal level? What is the local tax in your county/city? Make sure to state the county/city and the tax rate. How does this compared to the tax rate of neighboring counties/cities? How do you feel about this? Does the location with the higher tax rate receive better amenities (schools, police, road conditions? Would you rather pay a higher tax for better service?arrow_forward
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