A commodity tax drops by 20% while consumption rises by 15%. What is the net impact on revenue_________?
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Answer: B. It decreases by 8%
Explanation
Revenue is calculated as the product of the commodity tax rate and total consumer consumption. Applying sequential percentage changes using the net change formula accounts for both opposing factors. Combining a twenty percent drop and fifteen percent rise yields a net decrease of eight percent. The net percentage change formula combines two successive percentage changes into a single overall metric. Economic revenue depends directly on pricing levels and consumer demand quantities interacting together. A percentage decrease is represented as a negative value in standard mathematical calculations.
Governments analyze tax elasticity to predict how altering commodity tax rates will impact total tax revenue. Retail businesses evaluate price changes and sales volume shifts to maximize overall revenue generation. Macroeconomic forecasting relies on understanding how consumer spending responds to fiscal policy adjustments. Option A suggests an eight percent increase which reverses the direction of the net calculation. Option C proposes no change in revenue which ignores the compounding effect of the two percentage shifts. Option D offers a ten percent increase which incorrectly computes the combined percentage formula.
- Subject
- Mathematics
- Category
- Mathematics
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- —
- Difficulty
- medium
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