Suppose You Are Offered a $5,000 Raise at Work

question 1

Multiple Choice

Suppose you are offered a $5,000 raise at work.Your current income tax rate is 25 percent.Your marginal income tax rate is 28 percent.Your average tax rate is 20 percent.The additional income tax you owe to the federal government (assuming you stay in the same rate bracket) if you accept the job will be

• A) $1,250.
• B) $1,400.
• C) $1,000.
• D) $250.
• E) $150.

---

Definitions:

Socially Optimal

A situation in which resources are allocated in the most efficient manner from the perspective of society as a whole.

Subsidize

Financial support extended by a government or organization to lower the production costs or price of goods and services, making them more accessible to the public.

Negative Externalities

Costs suffered by a third party as a result of an economic transaction, which are not reflected in the transaction's price.

Taxed

The act of imposing financial charges on individuals or entities by a governmental organization in order to fund public spending.