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The tax on a commodity is diminished by 20% and its consumption increased by 15%. The effect on revenue is_________?

Correct answer: B. It decreases by 8%

  • A. It increases by 8%
  • B. It decreases by 8%
  • C. No change in revenue
  • D. It increases by 10%
  • E. None

Explanation

Revenue equals tax per commodity multiplied by consumption. The new revenue factor is 80% x 115% = 0.80 x 1.15 = 0.92, so revenue becomes 92% of the original and decreases by 8%. The likely mistake is subtracting 20% from the 15% increase and choosing an 8% increase.

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About Percentages

Percentages express a quantity as parts per hundred and support calculations involving increases, decreases, discounts, commissions, taxes, and successive changes. Questions require distinguishing percentage change from percentage points and identifying the original value when a final value and its percentage change are given.

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