How Would the Elimination of a Sales Tax Affect the Market

question 119

Multiple Choice

How would the elimination of a sales tax affect the market for a product that had been subject to the tax?

• A)The demand for the product would rise and the equilibrium price would fall by the amount of the tax.
• B)The equilibrium price for the product would fall by less than the amount of the tax.
• C)The reduction in government revenue from the tax would be made up by an increase in property taxes.
• D)The supply of the product would become more elastic.

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Definitions:

First-In, First-Out

An inventory valuation method that assumes that the first items placed in inventory are the first items sold, ideal for products that are perishable or have a short shelf life.

Predetermined Overhead Rate

A rate calculated before a period begins, based on the estimated overhead costs and estimated activity base, used to allocate overhead costs to products or services.

Direct Labor Costs

Expenses attributed to the payment of employees directly involved in the production of goods or services.

Machine Hours

A measure of the amount of time a machine is operated, used in allocating manufacturing overhead costs.