1. Suppose there are three people discussing the amount of taxes they pay and wondering if the current tax system is fair. Jeff earns an income of $300,000 a year and has an annual tax bill of $40,000. Margaret earns and income of $200,000 a year and paid $30,000 in taxes to the government. Finally, Ken has an income of $100,000 a year and pay $20,000 in taxes.

a. Calculate each person's average tax rate.

b. Is the current tax structure progressive or regressive?

2. Currently the tax rate on the first $10,000 of income is 8%. On earnings between $10,000 and $20,000 the tax rate is 10%. On earnings between $20,000 and $40,000 the tax rate is 15%. Any income earned between $40,000 - $60,000 is taxed at 25%; and the tax rate is 28% on incomes above $60,000.

a. Currently your taxable income is $64,000. What is the total amount of tax you will pay?

b. What is your average tax rate?

c. Is the tax structure progressive or regressive?

3. The following table outlines the market for t-shirts in a small town:

Price Quantity   Quantity

      Demanded  Supplied

$19     0          60

$16   10           50

$13   20           40

$10   30           30

$7    40            20

$4    50            10

a. What is the current equilibrium price and quantity in this market?

b. Suppose the city government decided to impose a $6 excise tax on t-shirts sold. What is the quantity demanded and supplied in this market after the tax is levied? What price do consumers pay? What price do firms receive?

c. How much tax revenue is generated? What is the size of the deadweight loss as a result of this tax?