Question

The tax on a commodity is dimnished by 20% and its consumption increases by 15%. the effect on revenue is

Answer 1

Revenue= consumption+tax amount per commodity
therefore,
let consumption=100
tax per commodity=100
revenue =100×100=10000

new consumption =100(100+15)/100
=115
new tax per commodity=100(100-20)/100
=80
therefore,
revenue =115×80=9200
decrease in revenue=10000-9200
=800
there fore revenue=800×100/10000
=8%