Question

Aseniorcitizengetsapart-timejobatafast-food

restaurant.Sheearns\(8perhourforeachhoursheworks,andsheworksexactly25hoursperweek.Thus,hertotalpretaxweeklyincomeis\)200.Hertotalincometaxassessmenteachweekis\(40.Shepays\)3intaxesforthefinalhoursheworkseachweek.

a. What is this person's average tax rate each week?

b. What is the marginal tax rate for the last hour

she works each week?

Short answer

• A person's average tax rate is 20 % and the Marginal Tax rate for the last hour is 37.5 %

Step-by-step solution

Step 1. Meaning 

The specific percentage at which any corporation or an individual is taxed is the tax rate.

Step 2. Given

She earns $8 per hour for each hour she works, and she works exactly 25 hours per week. Thus, her total pretax weekly income is $200

total hours * wages per hour

= 25* $8

=$ 200

total income tax assessment each week is $40

Step 3. Explanation(a)

person's average tax rate each week

= Income tax /Total income *100

by putting values in formula =

=$40/ $200 *100

= 20%

A person's average tax rate is 20 %

Step 4. Explanation 

She earns $8 per hour for each hour

&

She pays $3 in taxes for the final hour

The marginal tax rate for the last hour =

Assessed tax for last hour/ wage rate *100

by putting values into formula -

= $3/ $ 4 *100

= 37.5 %

The Marginal Tax rate for the last hour is 37.5 %