From the information given above about the tax, it is clear that the condition of the household under the new program "could be equally well off or worse off." (Option D)
It is given that
Gasoline consumption per annum is 800 gallons; while
The tax rate is 10%.
Therefore, the tax per annum
= 800 * 10% = $80.
Note however that
However, the average household receives a $80 tax rebate every year. As a result, households benefit from tax rebates while households suffer from 10% per year taxes. However, given the tax amount = tax rebate = $80, the household becomes equally well off and worse off.
Tax rebates are defined as a reimbursement that you are entitled to if your taxes paid to exceed your due. For example, if your tax burden is $30,000 but your issuer pays the Government $ 40,000 on your behalf, you are eligible for a rebate or return.
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Full Question:
Suppose that the average household in a state consumes 800 gallons of gasoline per year. A 10-cent gasoline tax is introduced, coupled with a $80.00 annual tax rebate per household. Will the household be better or worse off under the new program?
The household:
a) will be worse off.
b) could be equally well off or better off.
c) will be better off.
d) could be equally well off or worse off.
e) will be equally well off.
