Suppose a firm buys $3000 worth of inputs from other firms, hires $2000 worth of labour services, and has sales revenue of $7500. The firm's resulting profit is $2500. If the GST (a value- added tax) rate is 5 percent, this firm will pay in GST.

Question

Quizplus · Accepted Answer

The firm's total value-added is its sales revenue minus its costs of goods sold, or $7500 - ($3000 + $2000) = $2500. The GST owed is 5% of this value-added, or 0.05 × $2500 = $125. However, since the question asks for the GST paid, we need to add this amount to the GST paid on the inputs purchased from other firms, which is 5% of $3000 = $150, for a total of $225. Therefore, the best choice is C) $225.

Suppose a Firm Buys $3000 Worth of Inputs from Other