Question

Consider a country with an income tax as follows:  for each of the first $100,000...

Consider a country with an income tax as follows:  for each of the first $100,000 earned a worker must pay 5% to the government;

 for each dollar earned between $100,000 and $200,000 a worker must pay 10% to the government;

 for each dollar earned between $200,000 and $500,000 a worker must pay 20% to the government;

 for each dollar earned above $500,000 a worker must pay 50% to the government. Alice has income of $160,000; Ben has income of $250,000; Carrie has income of $800,000.

It follows that Alice’s Average Tax Rate is _____, Ben’s Average Tax Rate is _____, and Carrie’s Average Tax Rate is _____.

A. is 3.75%; is 4%; is 30%.

B. is 6.875%; is 10%; is 28.125%.

C. is 7.5%; is 15%; is 35%.

D. is 10%; is 20%; is 50%.

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Answer #1

Average tax rate = Tax/Income x 100

Alice's tax = 5% x 100000 + 10% x (160000 - 100000) = $ 11000

Alice's average tax rate = 11000/160000 x 100 = 6.875%

Ben's tax = 5% x 100000 + 10% x (200000 - 100000) + 20% x (250000 - 200000) = $ 25000

Ben's average tax rate = 25000/250000 x 100 = 10%

Carrie's tax = 5% x 100000 + 10% x (200000 - 100000) + 20% x (500000 - 200000) + 50% x (800000 - 500000) = $ 225000

Carrie's average tax rate = 225000/800000 x 100 = 28.125%

Option B is correct

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