Suppose a firm buys $1000 worth of inputs from other firms,hires $1000 worth of labour services,and has sales revenue of $2500.The firm's resulting profit is $500.According to a value-added tax such as the GST,this firm would pay taxes on
A)$500.
B)$1000.
C)$1500.
D)$2500.
E)$4500.

Question

Quizplus · Accepted Answer

The value-added tax is a tax on the value that a firm adds to the goods or services it produces. In this case, the firm's value-added is its sales revenue ($2500) minus the cost of its inputs ($1000) and labor services ($1000), which is equal to $500. Therefore, the firm would pay taxes on its value-added of $500, which is option C.

Suppose a Firm Buys $1000 Worth of Inputs from Other