Suppose that your state raises its sales tax from 5 percent to 6 percent. The state revenue commissioner forecasts a 20 percent increase in sales tax revenue. Which of the following are plausible as a result of this increase in the sales tax. Is this plausible? Explain.

Question

Business

Heidi Spence

30 May, 06:59

Suppose that your state raises its sales tax from 5 percent to 6 percent. The state revenue commissioner forecasts a 20 percent increase in sales tax revenue. Which of the following are plausible as a result of this increase in the sales tax. Is this plausible? Explain.

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Answers (1)

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Natalee Hudson · Answer 1

Answer: No it's not plausible.

Explanation:

Here is the complete question:

Suppose that your state raises its sales tax from 5 percent to 6 percent. The state revenue commissioner forecasts a 20 percent increase in sales tax revenue. Is this plausible? Explain.

From the question, we are told that the state increases its sales tax from 5 percent to 6 percent and the state revenue commissioner predicted that a 20 percent increase in the sales tax revenue due to the increase in sales tax.

This is not plausible, when the sales tax increases from from 5 percent to 6 percent, this will lead to an increase in the prices of the goods. According to the law of demand, the higher the price of goods and services, the lower will be the demand for the good. So, in this case, due to the increase in sales tax, it may prompt the consumers to reduce their spending.

Therefore, a 20 percent increase in the sales tax revenue is not plausible. Even if there will be an increase in the sales tax revenue, it won't be up to 20 percent.