Question Help Chapter Problem 6 The table shows the distribution of market incom

Question

Question Help Chapter Problem 6 The table shows the distribution of market income in an economy The government redistributes income by taxing the 60 percent of households with the highest market incomes 10 percent; and paying the tax collected as benefits distributed equally to the 40 percent of the population with lowest market income The cost of administrating the redistribution scheme takes 50 percent of the taxes collected Complete the table >>Answer to 1 decimal place Income after tax and benefits Market income Income tax rate (percentage of tota (percentage of (percentage of total income market income household incomeafter tax and benefits) Households Lowest 20 percent Second 20 percent Third 20 percent Fourth 20 percent Highest 20 percent 20 30 36 10 10 10

Explanation / Answer

The boxes will be filled from lowest 20% to highest 25 in the following order;-

9.30- LOWEST 20%

13.30- SECOND 20%

18- THIRD 20%

27- FOURTH 20%

32.40- HIGHEST 20%

Working are as follows-

Since tax rate is 10% therefore, tax on third , fourth and highest 20% will be 2,3 &3.6 respectively. So, the income after tax for third, fourth and highest 20% will be 18,27 & 32.4 respectively.

Also the tax collected will be distributed equally between the lowest and second 20% so their income would be 9.30 & 13.30 respectively.

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