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.

Question

Quizplus · Accepted Answer

To determine the average tax rate, we need to divide the total tax paid by the total income:

Average tax rate = Total tax paid / Total income

= $7,000 / $35,000

= 0.2 or 20%

To determine the marginal tax rate, we need to look at how much extra tax Pat would owe on an additional dollar of income:

Marginal tax rate = Tax on the next dollar of income / Next dollar of income

= 33 cents (since for every extra dollar she earns, she owes the government 33 cents) / $1

= 0.33 or 33%

Therefore, the correct answer is B: 20% and 33%, respectively.

Pat Calculates That for Every Extra Dollar She Earns,she Owes