In 1994, the State of California Suffered a Devastating Earthquake

question 148

Multiple Choice

In 1994, the state of California suffered a devastating earthquake. To help pay for the damages, the state raised its sales tax by one cent per dollar of expenditure on most consumer goods. This state sales tax is an example of what economists call:

• A) an ad valorem tax.
• B) a specific tax.
• C) a neutral tax.
• D) a negative tax.
• E) none of the above

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted, indicating how much revenue is available to cover fixed expenses and to contribute to profit.

Variable Administrative Expenses

Costs that vary in proportion to changes in an organization's activity level, such as sales commissions.

Sunk Cost

A cost that has already been incurred and cannot be recovered, and hence should not influence future business decisions.

Sunk Cost

Costs that have already been incurred and cannot be recovered or reversed.