Pat calculates that for every extra dollar she earns, she owes the government 40 cents. Her total income now is $44,000, on which she pays taxes of $11,000. Determine her average tax rate and her marginal tax rate.
A)Her average tax rate is 40 percent and her marginal tax rate is 25 percent.
B)Her average tax rate is 40 percent and her marginal tax rate is 40 percent.
C)Her average tax rate is 25 percent and her marginal tax rate is 25 percent.
D)Her average tax rate is 25 percent and her marginal tax rate is 40 percent.

Question

Quizplus · Accepted Answer

Average tax rate = Total taxes paid / Total income 
= $11,000 / $44,000 
= 0.25 or 25%
 
Marginal tax rate refers to the tax rate applicable on the next dollar of income. As Pat owes 40 cents on every extra dollar earned, her marginal tax rate would be 40%. So, the correct option is (D).

Pat Calculates That for Every Extra Dollar She Earns, She