Taxes in Oz are calculated according to the formula

T = .01/2

Where T represents thousands of dollars of tax liability and I represents income measured in thousands of dollars. Using this formula, answer the following questions:

a. How much in taxes is paid by individuals with incomes of $10,000, $30,000, and $50,000? What are the average tax rates for these income levels? At what income level does tax liability equal total income?

b. Graph the tax schedule for Oz. Use your graph to estimate marginal tax rates for the income levels specified in part a. Also, show the average tax rates for these income levels on your graph.

c. Marginal tax rates in Oz can be estimated more precisely by calculating tax owed if persons with the incomes in part a get one more dollar. Make this computation for these three income levels. Compare your results to those obtained from the calculus-based result that, for the Oz tax function, its slope is given by .02I.

Intermediate Microeconomics and Its Application

11th edition

Authors: walter nicholson, christopher snyder

ISBN: 978-0324599107

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