Question:
A buyer values a house at $525,000 and a seller values the same house at $485,000. If sales tax is 8% and is levied on the seller, then what would be the lowest price that the seller would be willing to sell at?
Sales tax is a form of tax levied by the government when commodities are sold in the market. The burden of the sales tax falls on the seller but is ultimately paid by the consumer. It can be classified as an indirect tax.
Answer and Explanation: 1
If the seller values the house at $485,000, and the sales tax is 8%, the value of the sales tax is
{eq}\dfrac{8}{100} \times \$ 485,000 = \$ 38,800 {/eq}.
The seller would have to incur a cost of {eq}\$ 485,000 + \$ 38,800 = \$ 523,800 {/eq}.
Thus, the seller would not be willing to charge a price lower than $523,800.
$523,800 is the lowest price that the seller would be willing to sell the house at.
Learn more about this topic:
Sales Tax: Definition, Types, Purpose & Examples
from
Chapter 12 / Lesson 13
Oftentimes, when an item is bought an additional tax is levied at check out. Learn what sales tax is, the five types of sales tax, and examples with common goods and services. Understand the effects of different types of sales tax.
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Chapter 02 - The One Lessor of Business
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[Test Bank ] Managerial Economics, 5th Edition Luke M. Froeb, Brian T. McCann,
Michael R. Ward, Mike Shor
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luke-m-froeb-brian-t-mccann-michael-r-ward-mike-shor/
1. One lesson of business:
is tracing the consequences of a policy.
promoting a policy change to eradicate inefficiencies.
moving assets from lower to higher value uses, thereby creating wealth.
2. An individual’s value for a good or service is the
The amount of money he or she used to pay for a good
The amount of money he or she is willing to pay for it
The amount of money he or she has to spend on goods
3. The difference between Capitalism and Socialism is that
Capitalism is concerned more about how to slice up the “pie”
Socialism is concerned with making the “pie” as large as possible
Capitalism is concerned with making the “pie” as large as possible
4. A consumer values a car at $30,000 and a producer values the same car at $20,000. If the transaction is completed at
$24,000, the transaction will generate:
$4,000 worth of seller surplus and unknown amount of buyer surplus
$6,000 worth of buyer surplus and $4,000 of seller surplus
$6,000 worth of buyer surplus and unknown amount of seller surplus
5. A consumer values a car at $30,000 and a producer values the same car at $20,000. The transaction will not take place
if a tax is imposed
equal to the seller surplus
smaller than the total surplus
larger than the total surplus
smaller than the buyer surplus