Microeconomics,, 16th Canadian Edition

Percentage of pre-tax income

paid in sales tax

Overall average tax rate

a. Calculate the income tax and sales taxes that each
individual will pay annually and complete the
remainder of the table. (Remember when calculating
the sales tax paid that the individual’s total spending
includes their sales tax paid.)
b. Is the income tax progressive or regressive? How do
you know?
c. Is the sales tax progressive or regressive? How do you
know?
d. What effect does the sales tax have on the
progressivity of this tax system overall? What
government policy could address this effect?
12. The diagram below shows the competitive market for gasoline in
two island economies, Island Flatland and Island Steephills,
which have similar populations but have different elasticities of
demand for the product. On each island a tax of $0.20 per litre of
gasoline is imposed.