Question

1. Use Table A to Complete Table B.

Table A

On Taxable Income	The Tax Rate Is
Up to $27,050	20.0%
From $27,051 to $65,550	27.5%
From $65,551 to $136,750	30.5%
From $136,751 to $297,350	35.5%
Over $297,350	39.1%

Table B

Taxpayer	Income	Tax Amount	Average Tax Rate	Mariginal Tax Rate
Giannis	$52,700
Sue	$132,500
Damian	$237,000
Breanna	$315,250

2. Bryce loves baseball. During the entire baseball season (every day from mid-March until the end of October), Byrce will watch at least one game in his apartment at full volume. Candace loves basketball. During the entire basketball season (every day from mid-October until mid-June), Candace will watch at least one game in her apartment at full volume. Bryce and Candace are neighbors in the same apartment building and the walls of the building are extremely thin. In fact, when the baseball and basketball seasons overlap, neither can hear the games they are watching and each tries to play their games as loud as possible.

Part 1: (a) Describe the externalities that exist in this relationship. (b) Relying on an economic concept discussed in this unit, describe how Bryce and Candace could come to a solution (be sure to state the economic concept in your answer).

Part 2: If Bryce’s and Candace’s landlord imposed a decibel limit and required all of her tenants to cease making noise after 5pm, how would the landlord's solution be described using an economic concept discussed in this unit? Explain your answer using concepts from this unit.

Part 3: During the baseball offseason (November through mid-March), Bryce bears a $1,000 cost of hearing the loud basketball games Candace is watching. Meanwhile, Candace gets a $1,500 benefit from listening to the basketball games. Using the Coase theorem, describe a potential private outcome that could be negotiated between Bryce and Candace be beneficial to each neighbor. Explain your answer.

[Extra Credit 1 point]: Using concepts discussed in the unit, provide one reason why Bryce and Candace might not be able to negotiate a mutually beneficial outcome.

Answer 1

Question 1

Taxpayer - Giannis

Income = $52,700

This income is within tax bracket of $27,051 to $65,550 with tax rate of 27.5%.

Thus, the marginal tax rate is 27.5%.

Calculate the tax amount -

Tax amount = ($27,050 * 0.20) + ($25,650 * 0.275)

Tax amount = $5,410 + $7,053.75

Tax amount = $12,463.75

The tax amount is $12,463.75

Calculate the average tax rate -

Average tax rate = Tax amount/Income

Average tax rate = $12,463.75/$52,700

Average tax rate = 0.236 or 23.6%

The average tax rate is 23.6%.

Taxpayer - Sue

Income = $132,500

This income is within the tax bracket of $65,551 to $136,750 with tax rate of 30.5%.

Thus, the marginal tax rate is 30.5%

Calculate the tax amount -

Tax amount = ($27,050 * 0.20) + ($38,500 * 0.275) + ($66,950 * 0.305)

Tax amount = $5,410 + $10,587.50 + $20,419.75

Tax amount = $36,417.25

The tax amount is $36,417.25

Calculate the average tax rate -

Average tax rate = Tax amount/Income

Average tax rate = $36,417.25/$132,500

Average tax rate = 0.275 or 27.5%

The average tax rate is 27.5%

Taxpayer - Damian

Income = $237,000

This income comes within tax bracket of $136,751 to $297,350 with tax rate of 35.5%.

Thus, the marginal tax rate is 35.5%

Calculate the tax amount -

Tax amount = ($27,050 * 0.20) + ($38,500 * 0.275) + ($71,200 * 0.305) + ($100,250 * 0.355)

Tax amount = $5,410 + $10,587.50 + $21,716 + $35,588.75

Tax amount = $73,302.25

The tax amount is $73,302.25

Calculate the average tax rate -

Average tax rate = Tax amount/Income

Average tax rate = $73,302.25/$237,000

Average tax rate = 0.309 or 30.9%

The average tax rate is 30.9%

Taxpayer - Breanna

Income = $315250

This income comes within the tax bracket of over $297,350 with tax rate of 39.1%.

Thus, the marginal tax rate is 39.1%

Calculate the tax amount -

Tax amount = ($27,050 * 0.20) + ($38,500 * 0.275) + ($71,200 * 0.305) + ($160,600 * 0.355) + ($17,900 * 0.391)

Tax amount = $5,410 + $10,587.50 + $21,716 + $57,013 + $6,998.90

Tax amount = $101,725.4

The tax amount is $101,725.40

Calculate the average tax rate -

Average tax rate - Tax amount/Income

Average tax rate = $101,725.40/$315,250

Average tax rate = 0.323 or 32.3%

The average tax rate is 32.3%