Reducing a commodity's tax by 20% while increasing its consumption by 10% results in what percentage decrease in revenue?
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Answer: D. 12%
Explanation
Tax reduction of twenty percent is represented by a multiplier of zero point eight. Consumption increase of ten percent is represented by a multiplier of one point one. Multiplying zero point eight by one point one gives zero point eighty eight, representing a twelve percent decrease. Government tax revenue equals the product of the tax rate and total consumer consumption volume. Percentage multipliers less than one indicate decreases while multipliers greater than one indicate increases. Net revenue impact is calculated by finding the product of the individual scaling factors.
Fiscal policy analysts model government tax revenue shifts when excise duties and consumption change. Retail economists study how commodity price adjustments alter overall sales revenue collections. Business strategists evaluate pricing changes and volume shifts to forecast total gross revenue. Option a assumes revenue drops by the full tax reduction percentage ignoring consumption changes. Option b results from an incorrect subtraction of the multiplier product from one hundred. Option c overestimates the revenue loss by misapplying the consumption growth factor.
- Subject
- Mathematics
- Category
- Mathematics
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- —
- Difficulty
- medium
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