Question

Plan A

•	Consumption up to 1,000 apples is taxed at 50%.
•	Consumption higher than 1,000 apples is taxed at 20%.

5. Understanding marginal and average tax rates Consider the economy of Pomistan, where citizens consume only apples. Assume that apples are priced at $1 each. The government has devised the following tax plans:	Plan A

Plan B

•	Consumption up to 2,000 apples is taxed at 10%.
•	Consumption higher than 2,000 apples is taxed at 25%.

Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption levels of 600 apples, 1,200 apples, and 2,500 apples, respectively.

Consumption Level	Plan A		Plan B
(Quantity of apples)	Marginal Tax Rate	Average Tax Rate	Marginal Tax Rate	Average Tax Rate
	(Percent)	(Percent)	(Percent)	(Percent)
600
1,200
2,500

Complete the following table by indicating whether each plan is a progressive tax system, a proportional tax system, or a regressive tax system.

	Progressive	Proportional	Regressive
Plan A
Plan B

Answer 1