Question

If the tax code exempts the first $\$ 20,000$ of income from taxation and then taxes 25 percent of all income above that level, then a person who earns $\$ 50,000$ has an average tax rate of _ percent and a marginal tax rate of _ percent. a. $15,25$ b. $25,15$ c. $25,30$ d. $30,25$

Name: Problem 3, Chapter 12: Principles of Microeconomics
Uploaded: 2019-07-19T09:54:31-08:00
Duration: 3 min 7 s
Channel: Jiapeng Guo
Description: If the tax code exempts the first 20,000 of income from taxation and then taxes 25 percent of all income above that level, then a person who earns 50,000 has an average tax rate of percent and a marginal tax rate of percent. a. 15,25 b. 25,15 c. 25,30 d. 30,25

   If the tax code exempts the first $\$ 20,000$ of income
from taxation and then taxes 25 percent of all income
above that level, then a person who earns $\$ 50,000$
has an average tax rate of _____ percent and a marginal tax rate of _____ percent.
a. $15,25$
b. $25,15$
c. $25,30$
d. $30,25$

Principles of Microeconomics

N. GREGORY MANKIW 8th Edition

Chapter 12, Problem 3

Instant Answer

Solved by Expert Jiapeng Guo

07/19/2019

Step 1

The tax code exempts the first $20,000 of income from taxation and then taxes 25 percent of all income above that level. So, the total income that is taxed is $50,000 - $20,000 = $30,000. Show more…

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If the tax code exempts the first $\$ 20,000$ of income from taxation and then taxes 25 percent of all income above that level, then a person who earns $\$ 50,000$ has an average tax rate of _____ percent and a marginal tax rate of _____ percent. a. $15,25$ b. $25,15$ c. $25,30$ d. $30,25$

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Key Concepts

Marginal Tax Rate

The marginal tax rate refers to the rate at which the last dollar of income is taxed. It helps determine how much additional tax an individual will pay on an extra unit of income and is key to understanding the incentives for earning additional income.

Average Tax Rate

The average tax rate is calculated by dividing the total tax paid by the total income earned. It represents the overall percentage of income that is paid in taxes and provides a measure of the overall tax burden on an individual or entity.

Tax Exemption

A tax exemption is an amount of income that is not subject to tax. By exempting a portion of income from taxation, the effective tax base is reduced, thereby lowering the tax liability for individuals or entities. This concept is fundamental in designing tax systems to alleviate the tax burden on lower levels of income.

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