Pat Calculates That for Every Extra Dollar She Earns, She

question 334

Multiple Choice

Pat calculates that for every extra dollar she earns, she owes the government 33 cents. Her total income now is $35,000, on which she pays taxes of $7,000. Determine her average tax rate and her marginal tax rate.

• A)Her average tax rate is 33 percent and her marginal tax rate is 20 percent.
• B)Her average tax rate is 20 percent and her marginal tax rate is 33 percent.
• C)Her average tax rate is 20 percent and her marginal tax rate is 20 percent.
• D)Her average tax rate is 33 percent and her marginal tax rate is 33 percent.

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Definitions:

Excise-Tax Revenues

Government income derived from taxes imposed on specific goods, services, or activities.

Tax Rate

The percentage of income or value of goods that is collected by the government as tax.

Elastic Demand

Product or resource demand whose price elasticity of demand is greater than 1, so that any given percentage change in price leads to a larger percentage change in quantity demanded. As a result, quantity demanded is relatively sensitive to (elastic with respect to) price.

Price Elasticity

A measure of how sensitively the quantity demanded of a good or service responds to a change in its price.