The following hypothetical data give annual spending on various goods and servic
ID: 2428348 • Letter: T
Question
The following hypothetical data give annual spending on various goods and services for households at different income levels. Assume that an excise tax on any of these would, in the long run, be shifted fully to consumers.
Income range
Average income
Food
Clothing
Entertainment
$0–$25,000
$20,000
$5,000
$1,000
$500
$25,000–$50,000
$40,000
$8,000
$2,000
$2,000
$50,000–$75,000
$65,000
$9,750
$3,250
$5,200
$75,000–$100,000
$80,000
$10,000
$4,000
$8,000
> $100,000
$200,000
$16,000
$10,000
$30,000
Determine whether a tax on any of the following goods would be progressive, proportional, or regressive.
a. Food.
b. Clothing.
c. Entertainment.
Income range
Average income
Food
Clothing
Entertainment
$0–$25,000
$20,000
$5,000
$1,000
$500
$25,000–$50,000
$40,000
$8,000
$2,000
$2,000
$50,000–$75,000
$65,000
$9,750
$3,250
$5,200
$75,000–$100,000
$80,000
$10,000
$4,000
$8,000
> $100,000
$200,000
$16,000
$10,000
$30,000
Explanation / Answer
ANSWER:
A) Regresive tax on food because as income increases , propotion of money spend on food decreases
b) proprotional tax because as income increases , propotion of money spent on clothing remains same.
c) progressive tax on entertainment as income increases , propotion of money spent on entertainment increases.
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