There are three firms in an economy: A, B, and C.

Firm A buys $250 worth of goods from firm B and $200 worth of goods from firm C, and produces 200 units of output, which it sells at $5 per unit. Firm B buys $100 worth of goods from firm A and $150 worth of goods from firm C, and produces 300 units of output, which it sells at $7 per unit. Firm C buys $50 worth of goods from firm A and nothing from firm B. It produces output worth $1,000. All other products are sold to consumers.

(a) Calculate GDP.

(b) If a value-added tax (a tax on the total value added of each firm) of 10 percent is introduced, how much revenue will the government get?

(c) How much would the government get if it introduced a 10 percent income tax?

(d) How much would the government get if it introduced a 10 percent sales tax on final output?

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Business

1 July, 03:09

There are three firms in an economy: A, B, and C.

Firm A buys $250 worth of goods from firm B and $200 worth of goods from firm C, and produces 200 units of output, which it sells at $5 per unit. Firm B buys $100 worth of goods from firm A and $150 worth of goods from firm C, and produces 300 units of output, which it sells at $7 per unit. Firm C buys $50 worth of goods from firm A and nothing from firm B. It produces output worth $1,000. All other products are sold to consumers.

(a) Calculate GDP.

(b) If a value-added tax (a tax on the total value added of each firm) of 10 percent is introduced, how much revenue will the government get?

(c) How much would the government get if it introduced a 10 percent income tax?

(d) How much would the government get if it introduced a 10 percent sales tax on final output?

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Answers (1)

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Eliana Kemp · Answer 1

a) GDP = $3350

b) Revenue = $ 335

c) The government get if it introduced a 10 percent income tax = $ 410

d) The government get if it introduced a 10 percent sales tax on final output = $335