Question

Suppose a closed economy. Chili and chili sauce are the only things produced in the economy. The government collects $2,000 of tax from consumers, $5,000 from the chili farm and $5,000 from the chili sauce factory, and the government spends $12,000 to hire consumers to operate the government. The chili farm produces chilies that are worth $50,000. $20,000 of chilies are bought by consumers, and the rest $30,000 of chilies are bought by the chili sauce factory. The chili sauce factory produces chili sauce that is worth $50,000 and is bought by the consumers. Suppose the chili farm pays $15,000 to its workers, and the chili sauce factory pays $10,000 to its workers.

How much is the after-tax income of the consumers

A) $30,000

B) $32,000

C) $35,000

D) $37,000

Answer 1

Income paid by government = $12,000

Income paid by chili farm = $15,000

Income paid by chili sauce factory = $10,000

Total income recieved by consumers = $12,000 + $15,000 + $10,000 = $37,000

Tax collected from consumers = $2,000

Calculate the after-tax income of the consumer -

After-tax income of the consumers = Total income recieved by the consumers - Tax collected

After-tax income of the consumers = Total income - Tax collected = $37,000 - $2,000 = $35,000

The correct answer is the option (C).