Question

Suppose the tax rate on the first​ $10,000 income is 0​ percent; 10 percent on the next​ $20,000; 20 percent on the next​ $20,000; 30 percent on the next​ $30,000; and 40 percent on any income over​ $80,000. family a has income of​ $40,000 and family b has income of​ $100,000. what is the marginal and average tax rate for each​ family?

a. family​
a.marginallong dash—10 ​percent; averagelong dash—10 ​percent; family​
b.marginallong dash—30 ​percent; averagelong dash—30 percent.
b. family​
a.marginallong dash—20 ​percent; averagelong dash—20 ​percent; family​
b.marginallong dash—40 ​percent; averagelong dash—40 percent.
c. family​
a.marginallong dash—20 ​percent; averagelong dash—10 ​percent; family​
b.marginallong dash—40 ​percent; averagelong dash—23 percent.
d. family​
a.marginallong dash—20 ​percent; averagelong dash—15 ​percent; family​
b.marginallong dash—40 ​percent; averagelong dash—20 percent.

Answer 1

Family A: marginal rate 20%, average rate 10%

Family B: marginal rate 40%, average rate 23%

The marginal tax rate is the rate paid on the last dollar of income; this would be whatever tax bracket the family is in. The average price is the total tax divided by the total revenue.

Family A:

total income $40,000: this includes $10,000 at 0%, $20,000 at 10% (tax of $2,000), and $10,000 at 20% (tax of $2,000). The last rate paid is 20% so that is the marginal rate; the total tax paid is $4,000, divide that by $40,000 total income, that is the average rate.

Family B:

total income $100,000: this includes $10,000 at 0%, $20,000 at 10% (tax of $2,000), $20,000 at 20% (tax of $4,000), $30,000 at 30% (tax of $9,000), and $20,000 at 40% (tax of $8,000). The last rate paid is 40% so that is the marginal rate; the total tax paid is $23,000, divide that by $100,000 total income, that is the average rate.