Question

Q42. If the tax on an item is increased by 33% and its consumption is decreased by 23%, then what is the approximate effect on the revenue?
O (A) 13.2% decrease
O (B) 10 % increase
O (C) 2.4 % increase
O (D) 3.2 % decrease​

Answer 1

Given info : If the tax on an item is increased by 33% and its consumption is decreased by 23%.

To find : The approximate effect on the revenue is ..

solution : we know, revenue = consumption × tax amount per commodity

if we assume consumption is 100 unit and tax amount per commodity is 100 unit

then, revenue = 100 × 100 = 10,000

now tax is increased by 33 %

so, new tax = 100 + 33 = 133

consumption is decreased by 23 %

so, new consumption = 100 - 23 = 77

now revenue = 133 × 77 = 10,241

now percentage change in revenue = (10,241 - 10,000)/10,000 × 100

= 241/100

= 2.41 ≈ 2.4 % increase

Therefore the approximate effect on the revenue is 2.4 % (increase).

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Answer 2

Solution :-

Let

• Initial tax = Rs.10x
• Initial consumption = Rs.10y .

so,

→ Tax * consumption = Revenue

→ 10x * 10y = Rs. 100xy

now,

→ New tax = (10x * 133/100) = Rs.13.3x

→ New consumption = (10y * 77)/100 = 7.7y .

then,

→ New revenue = 13.3x * 7.7y = Rs.102.4xy .

therefore,

→ Revenue increased by = (2.4xy * 100)/100xy) = 2.4% (B) (Ans.)

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