Problem
Suppose that the income tax law exempts income of less than $8000 from the tax, taxes income between $8000 and $20,000 at a 25% rate, and taxes income greater than $20,000 at a 30% rate.
a. Find the average tax rate and the marginal tax rate for someone earning $16,000 and for someone earning $30,000.
b. The tax law is changed so that income of less than $6000 is untaxed, income from $6000 to $20,000 is taxed at 20%, and income of more than $20,000 continues to be taxed at 30%. Repeat Part (a).
c. How will the tax law change in Part (b) affect the labor supply of the person initially earning $16,000? How will it affect the labor supply of the person earning $30,000?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.