Handout 12 Key - Econ 3140-2 Fall 2009 Handout #12 Answer...

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Econ 3140-2 Fall 2009 Handout #12 Answer Key 1. (Question Four from Abel et.al., Chapter 15, numerical problems) (a) In this situation, someone earning income Y between $8 ; 000 and $20 ; 000 pays a total tax of T = (0 : 25) ( Y ± $8 ; 000) , while someone earning between $20 ; 000 and $30 ; 000 pays tax of T = $3 ; 000 + (0 : 30) ( Y ± $20 ; 000) . Someone with income of $16 ; 000 then pays tax of (0 : 25) ($16 ; 000 ± $8 ; 000) = $2 ; 000 . This gives an average tax rate of $2 ; 000 $16 ; 000 = 12 : 5% , while the marginal tax rate is 25% . Someone with income of $30 ; 000 then pays tax of $3 ; 000 + (0 : 30) ($30 ; 000 ± $20 ; 000) = $6 ; 000 . This gives an average tax rate of $6 ; 000 $30 ; 000 = 20% , while the marginal tax rate is 30% . (b) In this situation, someone earning income Y between $6 ; 000 and $20 ; 000 pays a total tax of T = (0 : 20) ( Y ± $6 ; 000) , while someone earning between $20 ; 000 and $30 ; 000 pays tax of T = $2800 + (0 : 30) ( Y ± $20 ; 000)
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This note was uploaded on 03/10/2010 for the course ECON 3140 taught by Professor Mbiekop during the Spring '07 term at Cornell University (Engineering School).

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