Suppose an individual experiences a permanent increase in income. ...

[geoffrey]

Suppose an individual experiences a permanent increase in income. As a result of this increased income, further assume that the individual eats dinner at restaurants more frequently each month.
 
  This information suggests that dinners at restaurants for this individual are A) an inferior good.
  B) a substitute good.
  C) a normal good.
  D) both complimentary and inferior.

Question 2

Suppose the income tax rate schedule is 0 percent on the first 10,000; 10 percent on the next 20,000; 20 percent on the next 20,000; 30 percent on the next 20,000; and 40 percent on any income over 70,000.
 
  Family A earns 32,000 a year and Family B earns 70,000 a year. Both families each receive a ten percent raise. What is the marginal tax rate of each and what is the extra tax paid by each after the raise?

[whitcassie]

Answer to Question 1

C

Answer to Question 2

Family A's new income is 35,200 which falls into the third tax bracket. Thus, their new marginal rate is 20 percent rate and so they will pay 640 in extra taxes (32000.20 ); Family B's new income is 77,000 which falls into the last tax bracket. Thus, their new marginal tax rate is 40 percent and so they will pay 2800 in extra taxes (70000.40 ).