5. Understanding marginal and average tax rates Consider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devised the following tax plans: Plan A Plan B • Consumption up to 1,000 coconuts is taxed at 5%. • Consumption up to 2,000 coconuts is taxed at 45%. • Consumption higher than 1,000 coconuts is taxed at 50%. • Consumption higher than 2,000 coconuts is taxed at 15%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption levels of 500 coconuts, 1,800 coconuts, and 3,000 coconuts, respectively. Consumption Level Plan A Plan B (Quantity of coconuts) Marginal Tax Rate Average Tax Rate Marginal Tax Rate Average Tax Rate (Percent) (Percent) (Percent) (Percent) 500 5 45 1,800 50 45 3,000 50 15 Complete the following table by indicating whether each plan is a progressive tax system, a proportional tax system, or a regressive tax system. Progressive Proportional Regressive Plan A Plan B
5. Understanding marginal and average tax rates Consider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devised the following tax plans: Plan A Plan B • Consumption up to 1,000 coconuts is taxed at 5%. • Consumption up to 2,000 coconuts is taxed at 45%. • Consumption higher than 1,000 coconuts is taxed at 50%. • Consumption higher than 2,000 coconuts is taxed at 15%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption levels of 500 coconuts, 1,800 coconuts, and 3,000 coconuts, respectively. Consumption Level Plan A Plan B (Quantity of coconuts) Marginal Tax Rate Average Tax Rate Marginal Tax Rate Average Tax Rate (Percent) (Percent) (Percent) (Percent) 500 5 45 1,800 50 45 3,000 50 15 Complete the following table by indicating whether each plan is a progressive tax system, a proportional tax system, or a regressive tax system. Progressive Proportional Regressive Plan A Plan B
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter12: The Design Of The Tax System
Section: Chapter Questions
Problem 2PA
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