-Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT).If the government imposes a VAT rate of 10 percent,the miller must pay ___________ in VAT tax and will need to raise the price he charges the baker to _______________.
A) $0.06; $0.66
B) $0.08; $0.88
C) $0.08; $1.54
D) $0.60; $1.20

Question

-Refer to Exhibit 11-5 which summarizes the situation prior to the value added tax (VAT).If the government imposes a VAT rate of 10 percent,the miller must pay ___________ in VAT tax and will need to raise the price he charges the baker to _______________.
A) $0.06; $0.66 
B) $0.08; $0.88 
C) $0.08; $1.54 
D) $0.60; $1.20

Quizplus · Accepted Answer

The miller must pay 10% VAT on the value added, which is $0.80 (the difference between the price to the baker and the price from the farmer). 10% of $0.80 is $0.08. The miller will raise the price to the baker by this amount, making it $1.54.

-Refer to Exhibit 11-5 Which Summarizes the Situation Prior to the Value