Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct?
A)Ted's marginal tax rate is 60 percent, and his average tax rate is 50 percent.
B)Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.
C)Robin's marginal tax rate is 50 percent, and her average tax rate is 45 percent.
D)Robin's marginal tax rate is 60 percent, and her average tax rate is 40 percent.

Question

Quizplus · Accepted Answer

Ted's marginal tax rate is 50 percent because his income falls in the second bracket ($20,001 to $50,000). His average tax rate is calculated as total tax paid ($6,000 + $10,000 = $16,000) divided by his income ($40,000), which is 40 percent.

Suppose That the Government Taxes Income in the Following Fashion