Samuel and John live are the only two people on a planet. The planet has the following tax schedule: Suppose that Samuel currently makes $8000 and John currently makes $4000 in taxable earnings.

A. What is their current marginal tax rates.

i. Samuel: ii. John:

B. What is their current average tax rates.

i. Samuel: ii. John:

C. Assume that the utility of Samuel and John are both given by U(c) = xx where c is each individuals after-tax income under Tax Schedule A. Calculate the social welfare of the economy after taxes if we use a Utilitarian social welfare function.

D. Consider the following alternative tax schedule. Is this tax schedule (Tax Schedule B) more progressive, regressive, or neutral relative to the current tax schedule (Tax Schedule A)? (Recall that the only two people on the planet are Samuel and John and assume that they cannot adjust their pre-tax earnings.)

E. Pepsi employees can purchase parking permits with pre-tax income (yay!!). Would this agree or disagree with the Haig-Simons definition? Briefly explain why.